It too late to take a shine to gold? Investors buy gold during recession

UBS strategist John Reade said: “Purchases of physical gold have jumped over the past six months as investors’ fears about the financial crisis and the possible outcomes from government efforts to support banks and economies have intensified.”

UBS raised its gold forecast for 2009 saying it will average around $1,000 an ounce compared with its previous forecast of $700.

Others like Hector McNeil of ETF Securities are more bullish. He said: “Though [gold’s] value is relatively high, it is still less than half its price at the peak when it reached $2,300 an ounce on an inflation-adjusted basis.”

Graham Birch of the Black Rock Gold and General fund said: “Gold operates outside the banking system. It will retain its value even if the banking system collapses.” He added, however, that investors should not expect to make their fortune from gold. “It’s not for poor people wanting to get rich; it’s for rich people who want to stay rich.”

Over the past 12 months, the value of gold has increased by about 1%, while the FTSE 100 is down about 40%.

If you held £500 worth of gold in March 2008, it would be worth about £620 today even though the price of gold has fallen. This is because the commodity is priced in dollars.

However, Adrian Lowcock of adviser Bestinvest said investors may have missed the boat. “The big shocks to the economy have already occurred, and though there are likely to be further tremors along the way, I think the main rush towards the safety of gold has passed.” Investors are continuing to pour into gold to safeguard their wealth from a weak currency and economic outlook — despite the cost of the metal being at historic highs.

The spot price of gold is hovering at around $913 an ounce — 20% more than the $720 it fell to in October though it is still $97 off its high of $1,011 in March last year.

Inflows into gold exchange-traded funds, which allow you to track the metal’s price on the London Stock Exchange, are at record highs with an inflow of $581m (£396m) in the last week of January. ETF investors now own more gold than the Japanese and Swiss governments.

The move to “safe haven” assets such as gold is spurred on by fears of further currency weakness resulting from increased government debt, low interest rates and the prospect of further economic instability.