Margareta Pagano: All that glisters in the deep gloom of the global markets is gold

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The Independent Online

When I last met Peter Hambro he gave me a 10-tola gold ingot to hold. That was last November, when the gold price was $806 (£403) per ounce and the bar was worth about £1,000. It was tiny, like a chunk of chocolate wrapped in glittery paper, but surprisingly heavy and very cool.

You can see why he said everyone should own a little gold – an insurance policy against everything. Hambro, who is chief executive of Peter Hambro Mining, the second-biggest gold producer in Russia, also predicted that the yellow stuff would hit $1,000 within months. He was spot-on: since then, gold has soared to a new record of $1,011 an ounce and that bar is now worth a few hundred dollars more.

One of the drivers behind gold's rise has been the big increase in the number of new buyers coming into the yellow stuff. These are the institutional investors and pension funds that have piled in as they sought a safe place to put their money during the last few months of turmoil in the financial markets.

According to the World Gold Council, investors bought 72 tons of gold through its Exchange Traded gold securities in the last quarter – one of the biggest increases in recent years. This takes the total to 943 tons, valuing them at about $28bn – equivalent to the gold reserves of Russia and China.

Unlike other derivative products, these securities are designed to track the gold price as per-fectly as possible, but are backed by physical gold. And all the gold 400oz bars – known as London Good Delivery – are kept hidden here in London in a secret vault controlled by HSBC – even though by far the biggest market is in the US.

And the World Gold Council, which only started the securities a few years ago, is optimistic that growth for its products listed on stock exchanges around the world will continue to attract investors.

New products are due to be listed soon in Dubai, while the council is said to be looking at Moscow and Beijing as obvious areas for new listings.

To date, some 70 per cent of investors are family offices and wealthy individuals. But the council, which tracks ownership, reckons that it is the institutions and pensions which are behind the recent buying, and that they will continue to do so as long as gold outperforms equities and bonds and other asset classes.

Gold lost a little of its shine last week, falling to just below $900. There were signs too that other commodity prices were taking a tumble, with oil dipping from its recent highs. It might be that we are now seeing the start of the commodity bubble bursting, just like credit has done over the past year, and this may drag gold down with it in the short term.

But talking to Hambro again last week, I find he's as bullish as ever about gold. He's confident that over the longer term it will reach $1,500 an ounce. Now one of the biggest of the world's smallest gold explorers, Hambro says there is no safer place to put your money, particularly as currencies continue to depreciate competitively. And the price will stay high so long as the world remains so deeply unstable, with the Iraq situation, sabre-rattling between the US and Iran and China's own soaring demand – to name just a few. At the same time, demand is still high from the Far East, India and the Middle East, where most of the jewellery buying is done, while gold for industrial production is also holding up. Hambro reckons that as long as the dollar continues to depreciate, investors will want gold as a dollar and inflation hedge.

That takes us to the Bank of England and the European Central Bank, which are both trying harder than ever to keep inflation on a tight rein, more so perhaps than the US Federal Reserve. In two weeks, the Bank brings out its quarterly inflation report, which will give its forward predictions for the consumer price pndex. Last week's report from the Bank's Monetary Policy Committee pointed out that the short-term outlook was for a gradual rise in CPI inflation, with a high probability of it reaching 3 per cent by the end of the year because of fuel and food prices and sterling's recent weakness. Even the Bank's precise words can't hide the gloomy prognosis about inflation now feeding through from the last few months of record food and fuel prices. No wonder there was a three-way split between MPC members on future interest rate cuts.

Maybe it's not too late to take advice from Peter Hambro. Those gold ingots are no longer illegal to own and can be bought in the jewellers at Hatton Garden or over the internet.

Crisis of confidence? Try telling that to the new masters of the universe

What do Greg Coffey and Chris Hohn have in common? Apart from being very, very rich, they both displayed the most extraordinary self-belief last week.

First, Coffey. He is the 36-year-old Australian emerging markets trader who walked away from a $315m bonus due to him from GLG, the Curzon Street hedge fund where he worked. It takes guts to have such confidence in your ability – to tell your bosses you don't need their money as you can earn more on your own.

But that's what the publicity-shy Coffey did. By all accounts, he is a brilliant trader who lives and breathes his work, often putting in 20-hour stints to trade through the night across time zones. He started at GLG with a $250m allocation, which has grown to $7bn across four funds over the past five years.

Coffey resigned two weeks ago from GLG, which is one of Mayfair's biggest hedge funds with $24bn of assets, because he couldn't agree a new salary deal and also wanted to go out on his own. As GLG is listed in New York, and Coffey is the star trader, bosses Pierre Lagrange and Noam Gottesman had to announce his departure last Monday. Investors obviously have to be told and Coffey wanted to play a straight bat. His trading skills were rewarded with a dive in shares on the news.

Lagrange and Gottesman (who earned $800m each last year) have persuaded him to stay until October to give them time to work out various options, such as taking a stake in Coffey's new venture, as it's inevitable that GLG's investors will want to follow him.

Now to Hohn of The Children's Investment Fund, who has turned his activism to Tokyo. Scourge of Deutsche Börse and ABN Amro, Hohn is now taking on the Japanese government, which has ordered him to stop his move to increase his stake in J-Power, an electricity wholesaler, because of national security. But Hohn refuses to comply, arguing that the reasons for rejecting him are incorrect. He's now asked the British government to intervene and impose trade sanctions on Japan. Clearly the credit crunch has done nothing to bite into the new masters of the universe.

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