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Fee Fie Foe Fum I Smell The Whiff of Gold Bullion

For some, the modern tendency to accessorise and accumulate may have been tempered, disguised, or postponed by the recession, but for others, there is still no holding back. Where The pre-recession prerequisite accessory was a Handbag or a Hummer, it has now been truly trumped by the King Midas of all accessories - the gold bar - a serious hunk of luxury bling - on sale over the counter at Harrods this week for the first time.

Harrods has teamed up with Swiss refiner Produits Artistiques Metaux Precieux (PAMP) to sell a range of gold coins, and bars ranging from 1g (conveniently travel size) to 12.5kg, the choice size for gold bugs and Hollywood stick-em-up robbers. The large bar would, however, leave a large (nearly) £300,000 hole in your pocket, or a larger one if you're security-conscious and choose to accessorise with a mini-vault.

This may seem unusual - shopping for gold in the middle of a recession - but in reality it's not so strange. Gold has always held an attractive intrinsic value unlike flat currency, and in the current recession it could prove to be a savvy investment opportunity, not just a troy of a trophy or a pretty piece of jewellery.

For centuries it has been sought for its blend of rarity, beauty, malleability and strength. Nations and empires have coveted gold as a medium for exchange, a cache of wealth, and a consolidation of power. It has also served as insurance against depreciation and oscillations of paper money and other macroeconomic and geopolitical hazards.

Certainly, going for gold in an economic crisis is not new to history. News of the 1896 discovery of golden bounty in Bonanza (Rabbit) Creek in the Yukon reached the US by mid 1897, at the height of a series of financial recessions and bank failures. The economy was suffering, unemployment was widespread, and many who were hard hit by the financial crises turned to the gold fields for a little luck: the Klondike Gold Rush was born.

In times of recession, perhaps it is gold's 'primeval' quality that reels us in, as argued by Adrian Ash of UK online gold exchange, BullionVault.com. He says that while it is essentially a 'lump of metal with little purpose', gold tends to hold its value over the long term and it is not anchored to the value of cash - people are drawn to it in uncertain times.

This recession has seen gold become more and more appealing to individuals and investors alike. Middle-class scrap-metal dealing 'Gold Parties' invite guests to 'sling their bling', and 'Cash for Gold' campaigns are being launched across the High Street, for example by the jeweller F. Hinds. If you're a 24 carat hard nugget of a gold enthusiast, you may even consider upping sticks to join California's new gold rush. Here, Bernie, a well-seasoned 25 year gold prospector on the East Fork of the San Gabriel river, says that more and more people have come to the river in search of gold since the economic crisis began.

More importantly, gold is growing in popularity with investors, as Jill Schlesinger, a former gold trader and chief investment officer notes, 'when investors think the financial world is coming to an end, they sometimes turn to gold'. It is traded as a fear or risk asset. Indeed, a weakened US dollar, usually seen as the World's reserve currency, has also encouraged people to invest in gold - the high gold price itself indicating that all is not well with the global economy. Ian Henderson of the JP Morgan Natural Resources Fund reinforces this, saying 'There is still a great deal of uncertainty on unemployment and economic growth so it makes sense to diversify into gold.'

When it comes to investments, there's the quip about eggs in a basket, and it is always important to diversify. Gold can be an excellent safe-haven investment, wealth preservation pot, and an heirloom, but a healthy portfolio contains a range of assets and various exposure levels in different market sectors; bonds, property, cash, gold etc. Some advisors recommend 5-15% of your portfolio to be invested in gold and gold-related investments; the form of it you will buy, its role in your portfolio, and your position, need to be carefully decided. Are you a saver or a speculator, are you investing for the short, medium or long term, are you diversifying, saving or insuring? Will you invest in bullion and bars, numismatic coins, certificates, e-gold, paper gold, mutual funds, gold stocks or ETFs?

Perhaps it's worth considering for your retirement portfolio, after all, they're not called your 'Golden Years' for nothing. You can invest in gold through a Self Invested Pension Plan (SIPP), a scheme that holds investments until you retire and start to draw a pension income (in which high purity bullion can receive tax relief).

The Investment Pyramid The Gold Investment Pyramid
Above: The Investment Pyramid and Gold Investment Pyramid
(Click Image To Enlarge)

So, is now the time to invest? This week, the price of gold was reported to be rising, reaching over $1065 an ounce, a record high (although inflation adjusted this does not outstrip the 1980 peak price of $850 ($1884)). Gold is finite, the only currency whose production is going down, not up (with mine production on a declining trend), offering a safe-haven buying option. Further, seasonal factors will boost the profile of gold over the next few months, particularly in India and China, where gold is more 'mainstream', in the run-up to Diwali when it is given as gifts, and also with Indian farmers safeguarding harvest profits from currency fluctuations by investing in gold.

Prices have been rising for 8 years, but can they continue to do so? If involvement in gold is intertwined with the recession, offering a safe-haven for investors and a quick-fix for the cash-strapped, and recession predictions indicate that it's not all over yet, perhaps so. Gold is stable in times of geopolitical instability and when there is economic uncertainty. Maybe now is the time to wedge a gold bar between your investments and the currency fluctuations of this recession.

Yet timing is important. Some investors and analysts think there will soon be a correction to the rising trend. Hills are not just one-sided constant inclines after all. It's a case of knowing when it will come, and planning whether to ride it out or to get out. Dominic Frisby of Moneyweek.com cites 10% corrections in late 2005 and 2007, and says 'a correction will come. It always does', but he believes that 'investors should hold on and enjoy the bumpy ride'. He encourages 'those without any gold should buy some physical, even at these high prices...Buy gold and wait. Don't wait and buy gold.'

Experienced investors have long viewed gold and related investments as reliable investment choices that can be effective constituents of a well-diversified investment portfolio. However, like various other investments gold can be bullish and volatile. And if it's not the investment for you, there's always the reassuring chocolatey delight of a Harrods Gold Bar, more short-term and less bling, but yours for £9.95.

Little Gems