KEY POINTS:
Is gold a safe haven in turbulent times?
In recent weeks the price of gold has shot to a new high as investors seek a safe haven away from falling share markets. But is it really a good place to put your money?
Diversified Investment Strategy research director
Norman Stacey says it is a valid diversifier within a portfolio but investors should remember that it is a medium- to long-term investment.
"The current gold spike is attributable to perceived threats in the global financial system. Consistent with our reading of this being serious but manageable and considering the new sharemarket distractions bestriding the key Indian jewellery market, we would not be surprised to see gold bullion consolidate its price over 2008.
"Late purchasing speculators may even be disappointed with new gold forays in the short-term.
"Medium and longer-term, we believe current official measures will be inflationary with gold destined to go higher as a consequence. Simply put, more money than gold is being produced."
The price of gold, which is always quoted in US dollars, hit a high of US$850 an ounce in 1980 and then drifted downwards.
In 2000 it was down at US$280 an ounce and since then has climbed rapidly to a new record high of US$914 an ounce on January 14.
Stacey says although US investors who bought back in 2000 have been making money on gold steadily, only in the past 18 months have Kiwis done so well, as their dollar has strengthened against the greenback.
That is probably the biggest risk for New Zealand investors.
But as a commodity gold is seen in a very positive light.
Stacey says it is the only form of investment which is not a liability to another party - once you buy that gold bar it is physically your property, although the cost of storing requires another form of income unless you chose to keep it at home in a safe-deposit box.
Although he used to recommend gold securities or shares in gold mining companies in countries such as Australia, Stacey says that from a tax perspective direct investment in gold is now better as it does not come under the fair dividend rate rules introduced by the Government last year.
The main difference between cash in the bank and gold is inflation. Although cash earns interest, its value can be eroded by inflation. Gold is seen as being inflation proof as its price often goes up in tandem with oil prices because governments and large corporates buy gold to hedge against oil.
"An ounce of gold will buy a tailor-made suit" is a saying which Stacey says appears to be true when it comes to the value of gold.
Auckland alone has five or six mints where investors can buy gold and there are several others throughout the country.
New Zealand Mint broker Michael O'Kane says his business has seen a significant increase in buyers over the past year and anecdotally reports more mum and dad investors who are looking to put their money in something other than property or finance.
"We have seen between a 200 and 300 per cent increase."
O'Kane says most buyers hold on to their gold for between 10 and 15 years although some trade in it regularly. The most common form the New Zealand mint sells is the 1 ounce coin which is 99.99 per cent pure or 24 carat.
The growing demand has also seen a market created on local trading site Trade Me, although O'Kane says coins sell for more than double the price that they can be bought through a broker.
PRECIOUS METAL
* Gold hit a record high of US$914 an ounce on January 14.
* Unlike cash in a bank deposit it has the benefit of inflation protection.
* Should be treated as a medium- to long-term investment.
* New Zealand investors should be aware of currency risks as gold is always sold in US dollars.
