Nuggets of advice for gold fanciers

The lure of gold and other precious metals has made some risk-takers uncountably rich. It has also destroyed the family and corporate fortunes of others. For risk-averse investors wary of futures and commodities markets, are there safer ways to profit from precious metals?

To be sure, direct investing in physical gold assets is a high-stakes game for an individual at any given time. Institutional dealers, on the other hand, recognise these risks, hedging their bets to mitigate against potentially ruinous financial losses. Although best advice dictates extreme caution if you are risk-averse, there is a certain justification in recommending some of these assets in a professionally balanced portfolio.

Consensus opinion on gold opportunities varies greatly among market observers. Aggressive speculators believe it will breach the $1,000-an-ounce barrier over one to three years. Conservatives position it within $550 to $650. Those who chance in futures and options predict $850 within 18 months. Some respected traders are hedging options on resurgent silver markets.

Is it legally possible to hold gold deposits in offshore investment vehicles? It depends on whether the deposits acquired or proposed in physical asset possession (PAP) holdings, or held via bullion certificates, futures and options derivatives shares or funds and which offshore vehicles are preferred.

Private banking accounts (PBAs) or offshore trading bonds (OTBs) for instance? OTBs cannot hold physical possessions including bullion bars, diamonds, properties and works of art. Duly appointed banks can accept and trade in PAP Bullion securities, but not necessarily in any other forms of precious metal investment opportunities. Speculative bullion investors, who prefer tangible holdings within bank vaults, face a number of collateral-related security risks regarding:

- Liquidity, asset portability and varying tax liabilities.

- Inheritance and probate problems, which can be avoided by utilising appropriately structured OTB vehicles.

What alternative precious metal investments exist other than "physical" acquisitions? Surprisingly many can be accessed via both your lump-sum and regular premium investments. Some recognised options embrace:

Mirror funds. These instruments parallel the performance of the underlying fund in which global institutions have substantial investments. These are reoffered to investors as a form of share. This gives exposure to bullion markets for monthly premium investors.

Fund of funds. These collective vehicles basket highly defined mining company shares under one roof. If you are a lump-sum investor you can acquire allocations on daily or monthly trading dates. Some Morningstar-rated performers 48% and over one-year terms.

Specialist core and mutual funds. These are similar but with sector-oriented or correlated positioning. Recent yields have ranged from 19% to 54%.

Gold exchange-traded funds (GETFs), gold mint certificates (GMCs) and digital gold currency accounts (DGCAs). Ostensibly, these are investments into direct liquidity bullion reserves, without the constraints of physically holding gold bars. Instead, you can trade precious metals in similar ways as institutions. Returns are essentially the same as the intraday spot price and the London gold fixing standard that traditionally governs bullion trading levels.

If you are a speculator looking for alternatives you can take higher-risk positions via:

- BUGS: Baskets of unhedged gold stocks.

- Indexed spread bets.

- SETFs: Stock exchange-traded funds.

- Bullion-backed currency trading accounts.

- Derivative markets of futures and options for the real high-rollers.

Are these alternatives high-risk or worth the risk? The best advice is always to seek professional guidance and risk assessment profiling in respect of:

- Tolerance to risk.

- Capital sum, income and dependent family needs.

- Time-horizon goal factors.

- Minimum yield from deposit requirements.

- Many other risk-versus-return considerations.

Bullion-correlated investments are undoubtedly worth considering as a small part of your well-balanced portfolio. However, if you are a highly cautious investor you might feel more secure with less volatile asset-backed securities in, say, the property sector.

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