GOLD HAS proved to be a really bad investment for most of the last two decades, and it could get worse before it gets better. But there could be a silver lining in sight and within the next 12 months, gold bars and coins could start giving cash, bonds and shares a run for their money and competing for a place in the typical investment portfolio.
Worldwide, demand for gold for industrial uses and for jewellery is now 50 per cent greater than the new supply but there may be 20- 30 years of excess supply stored in the vaults of central banks, quite apart from private hoards of gold and jewellery, especially in Asia.
But gold costs money to store and earns no interest in private hands, and is no longer in demand as a hedge against inflation. Prices have slumped from a peak of over $800 an ounce in 1981 to less than $260 now. In real terms it is back where it started in 1972 when the US Treasury stopped selling gold at $35 an ounce and sent the price soaring. The price has fallen more than 10 per cent this year alone, since the Swiss voted to abolish the backing for the Swiss franc and sell an estimated 1,300 tons of surplus gold, starting next year. The IMF is now threatening to sell over 300 tons to set up an investment fund for the 40 poorest countries, and on 6 July the Bank of England will start auctioning 25 tons of UK gold each quarter to invest in more profitable assets. According to Bob Beasley, an analyst at Barclays Capital, the price of gold could fall further to $220-230 an ounce in the next few months as these official sales drive another nail in gold's coffin. For UK investors all this has been academic however. Sovereigns were withdrawn from circulation during the First World War and replaced by pound notes, and only registered collectors were allowed to hold the coins. Although the legal right to ownership was restored in 1979, gold and gold coins have never recaptured the British public's imagination, partly because they have never been promoted here, either as an investment medium or a store of value, and partly because they have been liable to VAT, which for the great majority of people means that VAT charged on purchases cannot be recovered when the coins are sold. …