Gold turns £27,800 into £1m

If you were an early investor in gold and have stuck by the precious metal for the past 43 years you will have made a small fortune.

A new report, released today by the Centre for Economics & Business Research and CoinInvestDirect, an online precious metals dealer, has found that the gold price has soared by some 3,500pc since 1970. This means an investor who spent £27,800 on gold and retained their investment ever since will today be a millionaire.

An investor with more modest sums would still be sitting on incredible gains. For instance, an investment of £10,000 would be worth £360,000 today.

However, the price of gold has had a rocky ride over this period, particularly in more recent years. Since 2001 the gold price has risen from $260 to trade at $1,275 today.

According to the report one of the main drivers behind gold’s success over the past decade is increased demand from emerging market economies. Fast growing countries, such as Brazil, Russia, India and China, have doubled their gold reserves since 2003. Because there have been more buyers than sellers, the gold price has been well supported.

“The emergence of Asia, Latin America, and the Middle East into the global economy has played a significant role in this dramatic price growth,” the report said. “Economic development has led to higher incomes, raising the levels of private consumption as well as private savings in emerging economies, where less-well developed financial sectors make gold an attractive store of wealth in these countries.”

Between 2006 to 2011 gold climbed by 76pc in value, as the metal is treated as a safe haven in times of uncertainty. The financial crisis began in 2007. However, over the past couple of years gold has suffered a sharp fall in value. In September 2011 it was trading at a record high of almost $1,900, but has since dropped by 34pc.

Improving economic conditions have been cited by many commentators as the reason for gold’s recent weakness. Others argue that investors have decided to take their profits after such strong performance.

Daniel Marburger, director of CoinInvestDirect, a London-based firm that sells gold bars and coins, said the outlook for gold was much more positive in the next year.

“The next 12 months could be a bumpy ride for economies as they come out of recession and this is likely to impact the gold price. Gold appeals to investors who are looking for a safe haven from global economic turbulence,” said Mr Marburger.

But other commentators are more bearish on the metal’s prospects. For instance Morgan Stanley said in its quarterly metals report last month that the price of bullion would average $1,313 an ounce in 2014, down from the $1,420 forecast for this year, and would keep falling until 2018.

What are investors’ routes to owning gold?

Some use exchange-traded funds such as ETF Securities’ Gold Bullion Securities. Shares in these can be bought and sold via stockbrokers, as with any other shares.

Another route is through trading platforms such as The Real Asset Company (therealasset.co.uk) or BullionVault (bulllionvault.com), where gold bullion can be bought or sold in small units and stored in secure vaults on owners’ behalf.

Some actively managed funds focus on gold. They include the BlackRock Gold & General Trust, which has returned 31pc over five years but lost 45pc in the past year. This fund invests largely in gold mining shares, which investors could also own directly, although this is a more risky strategy.

Another option is to back a fund with a decent exposure to gold. These include the Ruffer investment trust, which has 7pc in gold and gold equities, or RIT, which reduced its exposure to 2pc over the summer. The Troy Trojan fund has 14pc of its portfolio in gold and gold mining shares. Its well regarded manager, Sebastian Lyon, believes the “timeless currency” will protect wealth over the long-term.