Gold bricks mortaring ahead
The Press | Tuesday, 04 December 2007

Europeans have long considered precious metal investments to be a cornerstone of any well-balanced portfolio, but the Kiwi love of bricks and mortar may in the past have blinded us to a golden opportunity, Colleen Simpson reports.

If all the gold ever mined from all over the world was brought together in one place, it would barely fill a three-storeyed house.

Difficult to believe perhaps, but New Zealand Mint director Mark Sutton assures us that it is true.

It is, of course, the rarity of this glittering metal which makes it precious and therefore valuable. And valuable it is.

The price of gold has skyrocketed in the last 14 months, rising from $US500 ($NZ646.87) an ounce to $US815 ($1071) this month, with some pundits tipping it to break through the $US1000 mark in coming months.

A number of factors are behind the significant increase, including high oil prices. Gold is often considered an anti- flationary investment. As oil prices go higher, corporate profits are invariably affected and so stocks can become a little less attractive – driving would- be investors into other opportunities.

Also pushing prices higher is the industry's inability to meet demand, a shortcoming which dates back two decades.

In the 1980s gold prices were at a low, around $US200 an ounce, and it cost about $US350 an ounce to mine – the end result being that little exploration work was done and supply is short 20 years later, Sutton says.

"And with the world getting greener it's now harder to get the mines open."

While we may have been slow to embrace gold for its investment qualities, New Zealanders are discovering all that glitters can be gold.

Sutton says it is difficult to measure exactly how many Kiwis are investing in gold but, while loath to reveal commercially sensitive figures, he says the number of inquiries from potential investors fielded by New Zealand Mint increases by between 200 per cent and 300 per cent a month.

He attributes this increased curiosity to a number of factors, including a slowing in the property market and the collapse of second-tier finance companies.

"With gold they own it, they've got it there and no-one can take it away from them. From their point of view there's no smoke and mirrors," he says.

"Gold is one of the few investments which is as liquid as cash. It's very easy to move."

Its appeal is that it is easily transferred, often between generations. In Europe it is often passed down as part of an inheritance; in India it is a traditional gift, a custom which absorbs about 850 tonnes of gold annually, and the Chinese appetite for gold is on the rise after trading it was made legal just five years ago.

Interest from immigrants from countries like the United States and South Africa – where investing in gold is more commonplace – has also given the company a boost.

"There's been such a focus on property that other forms of investment haven't been promoted or looked at by financial advisers, and I think that's indicative of the New Zealand market," he says.

"The majority of our clients would be mum and dad Kiwis and that's developing quickly."

Sutton says most investors have done their own research, turning to the internet for information they cannot easily find at home. But the beauty of gold being traded on an international market, he says, is that it is relatively easy for Kiwis to educate themselves.

Rebecca Simcock, co-owner of Youngs Jewellers in Christchurch, says the business has seen an exponential increase in people interested in investing in gold in the last year, and fields at least a couple of calls every day from people wanting the spot price.

"The price goes up and people want to buy," she says.

"That's always seemed quite strange to us."

When gold hit its most recent peak one investor purchased $30,000 of the precious metal, which Youngs sell in one, two, five and 10-ounce bars.

Simcock is at pains to point out that Youngs does not advise on the market and says most clients track the market themselves.

Many of those delving into the market appear to be doing so for the first time and some come as representatives of group syndicates, she says.

"People like to see it and they love to hold it when they come and pick it up," she says.

Youngs does not offer storage facilities for the precious metal and neither does it ask what clients intend to do with their stash once they leave the premises – although in at least one case Simcock believes it was stored at the client's home after she delivered it on site.

Sutton wants to dispel the myth that you must be wealthy to invest in gold, saying that the average Kiwi investor feels embarrassed to ring up and confess to having a mere $10,000 to invest.

The average client spend at New Zealand Mint is between $10,000 and $40,000 and, although they have much bigger spenders, the company is more than comfortable with that level. They do not encourage investors to put their life savings into gold, saying it should represent between 5 per cent and 10 per cent of an investment portfolio.

"We'd much rather have lots of investors with $20,000 than one with $1 million," he says.

That is not because New Zealand Mint is a commission- based business; it isn't. The mint makes its money buying unrefined gold at spot price and then tacking on a small margin for its coffers which includes the cost of minting it into a tradeable form.

It sells gold Kiwi coins, which weigh in at an ounce each with the minimum purchase being $NZ5000, which at the current rate would buy less than five coins.

Bullion, which is a term used with reference to the investment market not the metal in its natural state, can be bought as an ingot, bar or coin.

However, if you have a jewellery box full of bling, it too is affected by spot price rises and falls. The difference between investing in pure gold and gold jewellery, says Sutton, is significant.

For a start, jewellery attracts GST – even if it is 24 carat – because it is considered to be in a manufactured form. In addition to that 12.5 per cent there is the retail mark-up, which is not insignificant.

Regardless, as Simcock suggests, sales tend to go up as spot prices rise.

"They (investing public) think the best way to buy gold is to buy jewellery, but the best way is bullion," she says.

While some who buy bullion are happy for the mint to retain the metal and store it at their understandably low profile Auckland site, others travel from around the country to clap eyes on it first.

"For example, we have people from Christchurch who fly in because they want to see it and have confidence," Sutton says.

About 65 per cent of the mint's business comes from outside the Auckland area and Sutton says South Islanders tend to be a little more open to investing in gold than their northern counterparts.

"The farming community has a lot of money right now ... so they're interested," he says.