Is gold price boom ‘bubble’ about to burst? (From Bradford Telegraph and Argus)

Is gold price boom ‘bubble’ about to burst?

8:47am Wednesday 10th November 2010 in Features By Jim Greenhalf, T&A Reporter

Throughout history, political turbulence and uncertainty have resulted in gold rushes.

Over the past couple of years the price of gold has rocketed as the bottom has dropped out of the world’s biggest economies.

At the end of July, for example, an ounce of gold cost 1,166 US dollars. Last week the price was 1,355 dollars.

“Gold is the traditional safe haven during times of uncertainty,” says Rupert Fenton, investment manager in the Bradford office of stockbroker the Brewin Dolphin Group, which manages some £23 billion of funds for more than 130,000 private clients throughout the UK and Channel Islands.

“We have had gold parties where guests swap cash for jewellery over the latest Jamie Oliver recipe. We have seen the rise of cash-for-gold firms, where you can trade in your gold bracelet for much-needed readies – minus the commission, of course.

“Even Harrods has got into the act. The Knightsbridge store has been selling investment-grade bars and coins including sovereigns, South African Krugerrands and American Eagles from its lower-ground floor.

“The question for would-be investors is whether they are joining the party too late. Gold has already enjoyed more than ten years of a bullion bull market, rising from 253 dollars in 1999 to what it is at the moment.”

This indicates that in the years before recession the investment in gold intensified, doubtless a consequence of mistrust in the volatility of property as well as political instability in parts of Europe, terrorism and the wars in Iraq and Afghanistan.

Rupert Fenton thinks the jury is still out on global economic recovery.

“China and India have been buying gold recently. People remain nervous about the future. Gold is seen as a safe bet.

“But the possession of gold provides no income, no dividend. Before heading down a bullion vault, remember that, as a British investor, you are exposing yourself to fluctuations in the US dollar in which gold is always priced.

“If the value of the dollar slides against sterling, the value of your gold investments – whether in bars, coins, Unit Trusts or an Exchange Traded Fund – will be hit.

“You would do well to remember that Warren Buffett, the world’s most successful investor, recently warned that gold is the ‘ultimate bubble’. It is certainly an area that merits professional advice,” he added.