Diamonds may be a girl's best friend but, as the banks fail, gold appears to be the only commodity worth investing in. While an estimated $3.6 trillion was erased from global stocks last week, gold bucked the downward trend on markets and jumped 11%, the biggest percentage jump in 26 years.
Investors turned towards gold as a safe haven away from falling stock prices following the US government's takeover of American International Group (AIG) and the bankruptcy of Lehman Brothers. Prices rose from a low of $780 per ounce to a high of $893 in less than 24 hours and are expected to remain high due to continued turbulence in financial markets. London-based researcher GFMS said gold may rise to as much as $950 an ounce by the end of the year and some experts say it could even hit the record $1,030 mark.
"A portion of everybody's portfolio should be gold. Every bank has tonnes and tonnes of gold in their vaults. Gold is finite. It's a safe haven asset. It's the reserve currency of central banks and, as proven throughout history, gold goes up when property and stocks go down,'' says Mark O'Byrne, director of Gold and Silver Investments in Dublin.
The world's central banks, already the biggest holders of gold, are again looking at gold as an alternative and the Bundesbank in Germany recently said gold reserves are more important than ever. Suppliers of gold coin and bullion have been struggling to keep pace with the sudden surge in demand from investors.
"We're run off our feet. On Thursday we had a record day in terms of enquiries and had to bring people in from another division to help with sales. We're selling in the tens of millions," reveals O'Byrne.
"There is no stamp duty or VAT on gold. In the '80s and '90s people weren't buying gold. The property and stock markets were doing well so why would they? But now a huge mix of people are buying gold, from students who have a spare few bob lying around and want to invest it to high-earning individuals who are aware of the financial market."
Gold and Silver Investments buys and sells gold from wholesalers in the US and western Australia, and is the only approved EU seller of the government mint in Perth.
"A tiny minority of people, about 10%, will buy one-ounce coins and bars and keep them at home. Ninety percent buy in the Perth mint. It remains there for storage and you will receive a government certificate telling you you own this gold. They're also insured by Lloyds of London so it's one of the safest ways of buying gold."
O'Byrne insists that investments could fall as well as rise and that no one should put all their eggs in one basket. "It is crucial that all investors and savers are diversified, now more than ever, and thus every portfolio should have a minimum allocation of 10% to 20% gold in order to protect and hedge against geopolitical, macroeconomic and systemic risk."