Few commodities can offer the security and allure of gold

It is just a shiny, yellow substance we dig out of the ground, but we have such a deep-seated romantic relationship with gold that most of us believe it could never be a realistic investment option for us mere mortals. But with fears over the security of everything from cash to commodities, could gold really give you the security you want? Or is even this mystical metal subject to the global economic downturn?

Gold is surprisingly accessible for the average private investor. Most of us know that the stock market is open for investment to anyone who has the means and the will to buy shares, but few people imagine that gold could be a viable investment choice for the person on the street.

Historically, relatively few of us have chosen to put our money into gold, perhaps because the price has been very poor for a very long time. Unlike throwing your money into emerging markets, or even the buy-to-let housing market, it appeared there was no fast buck to be made through the precious metal. However, the banking crisis has set the price of gold fluctuating to a much greater degree, creating a greater potential for growth and, on the flip side, risk.

As with any other investment, gold can go down as well as up in value; having peaked at $1,030.80 an ounce in March, it is now trading close to the $820 mark. However, while even the biggest banks can go bust, not even ambitious City traders can destroy gold.

"Investors have been in pure panic, they think the world is ending," Nicholas Brooks, head of strategy at ETF Securities, told Reuters this week. "When people get into that sort of mentality, one of the first places they go to is gold."

Gold is always worth something. This is why buying some quantities of it is generally considered a good way of diversifying and hedging an investment portfolio. There are many ways to do this, but you should not get any notions of becoming a real-life Auric Goldfinger and heading out to buy a bar of bullion for yourself. Although it is doable, Darius McDermott, managing director of Chelsea Financial Services, advises this is "almost impossible and completely impractical". It is, however, possible to buy gold coins, such as British sovereigns or South African krugerrands. Although the latter is the modern industry standard, Lawrence Chard of the specialist coin and bullion dealership Chard, recommends that paying as much as 2 per cent more for sovereigns can be more profitable in the long run, since they are smaller, arguably more attractive and better known, and they are also exempt from Capital Gains Tax.

The best way to invest in gold as a physical commodity is probably to buy into an exchange traded fund, more commonly known as an ETF. These are listed on the London Stock Exchange and investments are made through a stockbroker as they operate like shares – directly tracking the price of gold rather than the fortunes of a company. They can also be bought through a SIPP, an ISA or a child trust fund, with the potential for tax relief. "By investing in an ETF you are effectively making a direct investment into gold," says McDermott. "You just don't leave it in your safe at night. But ETFs are a very secure method of investment because the company that sells you the ETF has to hold that amount of gold as collateral. And the gold can be reclaimed even if the company and its holdings bank go bust."

Other considerations when investing in physical gold include currency fluctuations. Since gold is priced in dollars it can be affected by how the US economy is faring – and the level of interest rates. "Physical gold doesn't yield anything, so you get no income from it," says Mark Dampier, head of research for independent financial adviser Hargreaves Lansdown. "However, at a time when interest rates are low, gold is more attractive because you will get less yield from anything else, so you're not missing anything."

The alternative way of investing in gold is to buy shares in mining companies. Gold-mining shares are partly driven by the price of gold, but they also exposed to wider fluctuations in the stockmarket, creating additional opportunities and risks. The shares can be bought directly, though this can be very risky as there are so many factors to take into consideration: the 40 per cent fall in BHP Billiton shares earlier this week serves as a warning, specialists suggest.

A more straightforward route for less experienced investors is to buy into a gold fund, such as the BlackRock Gold and General Fund. These funds trade shares in mining companies on behalf of investors and, although their values can still be volatile, the broad range of companies covered by their portfolios offers less risk than going it alone.

As with any serious investment, it is strongly advisable to seek out some good independent financial advice, but it is worth being aware that gold is not reserved only for ancient pharaohs and modern sheikhs.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
Arts and Entertainment
L to R: Hawkeye (Jeremy Renner), Captain America (Chris Evans) & Black Widow (Scarlett Johansson) in Avengers Assemble
film
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Arts and Entertainment
Pharrell Williams' “Happy” was the most searched-for song lyric of 2014
musicThe power of song never greater, according to our internet searches
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

    Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

    Selby Jennings: Quantitative Research | Equity | New York

    Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

    Selby Jennings: SVP Model Validation

    Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    Day In a Page

    War with Isis: The West needs more than a White Knight

    The West needs more than a White Knight

    Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
    Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

    'The day I was shot by the Taliban'

    Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
    Revealed: the best and worst airlines for delays

    Revealed: the best and worst airlines for delays

    Many flyers are failing to claim compensation to which they are entitled, a new survey has found
    The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

    The stories that defined 2014

    From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
    Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

    Disaster looming? Now you know where to head...

    Which British city has become the first to be awarded special 'resilience' status by the UN?
    Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

    Finally, a diet that works

    Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
    Say it with... lyrics: The power of song was never greater, according to our internet searches

    Say it with... lyrics

    The power of song was never greater, according to our internet searches
    Professor Danielle George: On a mission to bring back the art of 'thinkering'

    The joys of 'thinkering'

    Professor Danielle George on why we have to nurture tomorrow's scientists today
    Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

    Monique Roffey interview

    The author on father figures, the nation's narcissism and New Year reflections
    Introducing my anti-heroes of 2014

    Introducing my anti-heroes of 2014

    Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
    DJ Taylor: Good taste? It's all a matter of timing...

    Good taste? It's all a matter of timing...

    It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
    Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

    How we met

    Olivia Jacobs and Ben Caplan
    Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

    Bill Granger's healthy breakfasts

    Our chef's healthy recipes are perfect if you've overindulged during the festive season
    Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

    Who does your club need in the transfer window?

    Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
    The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

    Michael Calvin's Last Word

    From aliens at FA to yak’s milk in the Tour, here’s to 2015