Does gold offer investors a safe haven?

Gold bars and Financial concept 3D rendering conceptual image

During the last global financial crisis, gold soared in value. - Credit: Getty Images/iStockphoto

One of the most attractive features of the Saudi Arabian capital of Riyadh, where I worked for four years during the mid-1980s, was a tangible sense of personal safety.

Riyadh’s population comfortably exceeded one million, yet you could park your car on the city centre’s darkest road, leave the keys in the ignition, your wallet on the dashboard and not lock the doors then head off for a coffee or to a restaurant safe in the knowledge that upon your return the car, money and your keys would be exactly where you left them.

There was one simple reason for this: the penalties for theft were strict and rigorously implemented.

Nowhere was the pervading sense of security more evident than in the city’s gold souk. Buried deep within a network of narrow streets and thick-walled passageways, many lined with voluble retailers and imbued with exotic aromas of Middle Eastern cooking, stood Riyadh’s famed gold souk. This modestly-sized market, an ad hoc collection of small shops, open-air stalls and savvy traders eyeing their wares while counting thick wads of cash, was renowned for its mountains of precious metals.

A hive of after-dark activity, the souk literally glistened. Traders could quickly differentiate between serious buyers and interested observers who visited solely to experience the market’s hustle and bustle. Once a bracelet or necklace was placed on a set of digital scales the parties routinely haggled over price until a deal was struck, a process that could get quite noisy. Definitely not the type of behaviour you would expect in H Samuel. Sale agreed, the gold was wrapped in tissue paper after which a nod and a ‘Shukraan saddeeq’ formally completed the transaction.


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The most fascinating aspect of this desert trading was how it came to an abrupt halt when the call to prayer was made. Traders and shopkeepers dropped everything and walked from their stalls to the nearby mosque with their customers as Westerners were politely escorted from the premises. The shimmering mountains were left untouched; there was no requirement for mean-looking, hi-viz-jacketed, 6’8” security guards because no-one would be stupid enough to consider stealing anything.

Sure enough, after prayers, the souk re-opened, its valuable stock untouched and trading recommenced. It didn’t take long before the haggling grew louder and small clutches of contented customers bade farewell, disappearing for a chicken shawarma.

Intricate gold trinkets in a busy market place

When the price of gold soars, finance expert Peter Sharkey is reminded of the many visits made to Riyadh’s mesmerising marketplace in the mid-1980s. - Credit: Getty Images/iStockphoto

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Whenever the price of gold soars, as it did this week, I’m reminded of the many visits made to Riyadh’s mesmerising marketplace where I occasionally bought gold for my wife-to-be, thoroughly enjoying the cut-and-thrust of negotiation.

Though stock markets too have enjoyed a buoyant start to 2021, gold’s popularity – and its price – is often determined by uncertainty. Unlike stocks and shares, gold does not pay investors a dividend, but during uncertain times it can become a safe haven.

For example, at the peak of the last global financial crisis, in August 2008, gold sold for $813 per ounce. By July 2011, the yellow metal’s price had risen to $1,838 per ounce, a rise of 126%.

Bullion coins manufactured for investment purposes, such as Britannias or Sovereigns were once only available to dealers although nowadays there are dozens of respectable online firms offering them directly to the public.

Bullion coins tend to have a slightly less perfect finish than commemorative coins manufactured for collectors, which means their price more accurately tracks gold’s spot price. Twelve months ago, a gold sovereign cost around $286; at the time of writing, the same coin can be bought for $360, a rise of 26%. Earlier this week, the gold price edged back towards the $2,000 per ounce mark it last breached in August as pandemic-induced uncertainty had a marked impact upon the market.

Gone, however, are the days of gold souk haggling. A number of online firms, such as gold.co.uk, coininvest and bullionvault.com, as well as the Royal Mint, offer investors a safe haven for part of their portfolio in an uncertain world. Most firms offer insured delivery to your home and for a small premium, many will also store your gold. It’s also worth noting that buying more coins reduces the individual price and reduces the premium paid above the prevailing spot price.

Unlike silver, gold is VAT-free, while any profits are exempt from capital gains tax. A number of online firms can also cater for investors who may wish to invest in gold via their self- administered pension (SIPP).

It’s a far cry from downtown Riyadh circa 1985, but I suppose the big question is: will the price of gold continue its stellar start to 2021? If I knew the answer, dear reader, I’d be as rich as an Arabian prince. Happy new year.

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