Talk of gold rush leaves experts cold

PUBLISHED : Friday, 02 September, 1994, 12:00am
UPDATED : Friday, 02 September, 1994, 12:00am

ALL that glisters is not a golden investment, according to investment experts.

Recent claims that gold - the traditional staple for many Hong Kong portfolios - is set to make a comeback have met with a cool response.

William Tatham, a divisional director of independent financial advisers' Towry Law International, said: ''Gold has been a little disappointing since it came back from the peak of more than US$400 per ounce last year.

''It is important to remember that it is both an investment and a commodity, which means there are different forces at work affecting its price.

''Rising rates in the United States have forced up the cost of holding non-yielding assets and, as gold is denominated in US dollars, it has not been a very good investment for any foreign investor because of the poor performance of the US dollar.

''In addition, the resurgence of global inflation, which many gold bulls predicted, has not yet occurred.

''Even against this poor background, it seems to have held up well, probably because there has been a general increase in demand for commodities. Gold has remained cheap and there is still the likelihood that within the next year or two it will break significantly out of its current trading range.'' Lennon Chan, a director of Tai Fook Securities, said the crackdown on retail foreign exchange dealing in Hong Kong by the Securities and Futures Commission could result in an increase in gold bullion dealing.

Mr Chan, whose company advises and deals in both gold and foreign exchange, said: ''The new regulation on foreign exchange will not cover bullion trading. I would not be surprised to see interest in this increase.'' Mr Chan said his company was doing a lot of dealing for mainland investors. Advisers recommend gold both as an investment and as a hedge against inflation.

The simplest way of investing is to buy paper gold from the banks or gold coins. Hongkong Bank, for example, offers investors three methods of investing ranging from gold bars to passbook transactions.

Mr Tatham said: ''If you believe that the price of gold will rise, then there are better ways of harnessing this to make an improved return, using gold funds and gold shares.

''In simple terms, if gold is $380 per ounce, and it costs a mine $280 per ounce to produce, then the mine's profit is $100 per ounce. If the price of gold rises from $380 per ounce to $420 per ounce, then your paper gold will rise slightly more than 10 per cent.

''Unless you have some particular gold mining stocks in hand, then the most suitable course of action would be to purchase a gold fund.'' He recommends Mercury International Gold and General run by Julian Baring in London.

According to performance figures from Micropal, the statistics company, the Mercury fund is the top performer over three months and one year with a $1,000 investment returning $203 and $373 respectively.

''Funds like this, or the Guinness Flight Global Gold Fund, tend to have a portfolio of gold mining shares covering South Africa, Canada and Australia, along with some exposure to the actual metal.''