Looking for a pot of gold can be a risky prospect
IT’S been 200 years since Scotland enjoyed its last gold rush, when the first nugget to be panned at Helmsdale was turned into a priceless ring for the Duke of Sutherland.
Now the Highlands is hoping for a second golden age, as a new generation of prospectors begin drilling at key sites.
More than a million ounces of the precious metal could be unearthed – and we as head into turbulent times, Scottish gold might end up being worth billions.
Gold is seen as the ultimate ‘safe haven’. Its value soars when stock markets slump, as investors cling to a tangible asset. But going for gold certainly isn’t risk-free. We look at how to invest in this most glamorous of commodities.
CAN I BUY SCOTTISH GOLD?
NOT yet. The Cononish mine near Tyndrum, north of Loch Lomond, owned by Scotgold Resources, is due to start full production in spring 2018 after years of delays, and demand could be strong. Last year the firm auctioned off ten sample coins stamped with the Scottish Gold mark of a stag’s head. They were snapped up for an average of £4,558 per ounce – 348 per cent above the official gold price at the time.
Scotgold believes that Tyndrum alone could yield gold worth £200million. The firm recently confirmed that two jewellers have won contracts to make jewellery from gold mined at Tyndrum and Cononish – the luxury Scottish jewellery firm Hamilton & Inches and renowned Orkney jewellery designer Sheila Fleet.
Greenore Gold, which has linked up with a giant Turkish miner to exploit rich gold seams in the Grampians and Ayrshire, is unlikely to offer gold for sale the same way.
CAN I INVEST IN SCOTTISH GOLD MINERS?
SCOTGOLD’S shares are quoted on the Alternative Investment Market. But they’re a high-risk flutter unless you have some spare cash you can afford to write off in a small corner of your savings portfolio. You can also invest directly in Greenore Gold through a so-called enterprise investment scheme (EIS), designed to help smaller higher-risk trading companies to raise finance by offering tax relief to investors.
But even shares in mining giants are not for the average investor – it’s risky betting on upstart firms and you could be in for a wild ride.
Jason Hollands, managing director of financial advice firm Tilney, says even modest movements in gold prices can cause big swings in profits or losses at miners. He adds: ‘This can result in rollercoaster share prices – including periods of very steep losses.’
WHAT ABOUT GOLD MINING FUNDS?
A SAFER option might be a specialist mining fund, such as Blackrock Gold & General, CF Ruffer Gold or Investec Global Gold, run by experienced managers who pick from the range of global mining companies. The Blackrock fund was up almost 80 per cent last year, but it lost almost 20 per cent in 2015 and almost 50 per cent in 2013 – it’s not for the faint-hearted. Another avenue is exchange-traded funds or ETFs. These are so-called ‘passive’ investments which track gold price, often by buying physical gold. They have the advantage of very low annual management costs and there is no stamp duty on purchases. Standing behind these shares are actual bars of physical gold held in secure vaults. The biggest are SPDR Gold Shares and iShares Gold Trust, but Jason Hollands recommends using a low-cost fund such as Source Physical Gold.
COULD I GET MY HANDS ON BULLION?
YOU can buy physical gold through traditional dealers or online services such as BullionVault or GoldMadeSimple. Always compare dealing and storage costs – BullionVault claims its 0.12 per cent charge makes it cheaper than your typical tracker fund.
Royal Mint’s Signature Gold, which charges 0.5 per cent plus VAT, allows investors to share ownership of gold bars at a cost of £20 upwards. You still own your slice of gold, but the holding is easy to sell if necessary and you can invest through some pension plans. The Mint reported record demand for the service in the wake of last summer’s EU referendum.
WILL GOLD PRICES KEEP RISING?
THE price of gold is determined solely by demand and supply, and doesn’t produce any sort of ongoing income you can spend.
Its value has been rising steadily this year but is still way off its most recent peak in 2011.
Patrick Connolly, certified financial planner at Chase de Vere, says the reasons to invest in gold prices look sound, adding: ‘There is continued demand from sovereign nations, uncertainty surrounding much of the global economy, significant geopolitical risks, and the outlook for other assets is very mixed. That makes it an attractive bet.’
HOW LONG SHOULD I INVEST IN GOLD?
GOLD prices have careered between $1,100 and $1,800 in the past six years alone. Mr Connolly says: ‘From its historic peak in 1980, the price of gold fell by 65 per cent in less than three years. Investors had to wait more than 28 years to regain those losses.’
So while there are good reasons to invest, you must be in for the long haul. And don’t see gold as a substitute for a well-diversified investment portfolio, with shares, bonds and even property holdings.