Liontamer has launched a fund taking advantage of the interest in gold.
As readers will be aware from these columns the Liontamer trusts are Australian-registered funds in New Zealand dollars.
They are synthetic closed-end funds that are capital protected.
The fund creates its own index measuring the performance of London Gold Fixing Ltd, which is set daily in United States dollars at 3pm. There are five banks which trade in gold involved in setting the value for the index each day.
The Liontamer index will start at zero on the day the trust is implemented after closing.
The closing date is expected to be September 3, 2010.
The London Gold index is linked to the price of raw gold such that the Liontamer index follows the movements in the international gold price and is not affected by currency between the New Zealand and US dollars.
The term of the investment is six years and you have to remain fully invested for that time to receive the capital protection. Early withdrawal is available for a fee.
Your funds are deposited in Barclays Bank, which provides the capital protection.
You do not invest directly in gold as Barclays provides a financial instrument (derivative) that tracks the index.
A cynic at one of Liontamer's presentations suggested that launching a gold fund now was like being invited to a party that had been held several years ago. However, because the index begins at zero on start date and investors' funds are capital protected, an investment will take advantage of the recent price rise in gold.
That is, should the price fall from current levels, the capital protection will mean that investors' funds do not decline below the initial investment value.
Gold has been used for thousands of years as a store of wealth for governments, central banks and individual investors alike.
Gold has also been widely used as a safe-haven investment option, especially when economic conditions become unstable and during times of political uncertainty and periods of high inflation.
There is support for the gold price at current levels because of the strong supply and demand forces currently operating in markets.
Global gold production has been falling every year since 2001 and some historic gold producers are now believed to be near exhausting their reserves.
The slack has been taken up through recycled gold and the establishment of new mining projects because the price has made them profitable.
Demand is coming from three key sources: the jewellery industry, for industrial use and from investors.
It is important to note that as these critical supply and demand forces currently serve to underpin the gold price, any major change in these factors could have a significant impact on the gold price.
Increasing worldwide demand for gold for investment purposes during the global financial crisis has certainly helped to push the gold price up; however, in inflation-adjusted terms, gold still has some way to go to reach the highs of 1980.
In an article from Liontamer a graph from inflationdata.com shows the 1980 peak gold price in 2010 dollars would be the equivalent of $US2251 ($NZ3094) an ounce. The adjusted 1980 average annual price in 2010 dollars was $US1781.
The average 2010 gold price is $US1149 an ounce.
As at July 23 the price was $US1196. Much of my junk email hype from people with vested interests suggests the price could rise as high as $US1500 by the end of this year and reach $US2000 next year.
See your financial adviser for a Liontamer Gold investment statement.
Minimum investment is $5000.
Peter Smith is a certified financial planner and is the principal of Peter Smith Financial Services Ltd Dunedin. A disclosure statement is available on request and free of charge. Email finance@petersmith.co.nz
