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Barclays creates guaranteed bond linked to gold

Barclays Private Clients Premier Banking, the wealth management division of Barclays, is offering retail investors a capital-protected bond that is linked to the price of gold for a six-month term.

The gold index-linked deposit account is aimed at wealthy investors with at least £50,000 and offers investors a full capital return regardless of gold prices. There are two versions of the bond and both offer a 5 per cent return.

Bond one is based on gold prices rising and bond two is based on gold prices falling during the term. Investors who think gold prices will be volatile during the term can split their investment between the two versions.

To calculate the returns, the London Bullion Market&#39s afternoon fixing spot price of gold per troy ounce is recorded on May 19, 2003 and is measured again on November 19, 2003. Investors who split their investment between both bonds will get a 2.5 per cent return whether gold prices go up or down. This is half the return achieved by investing in only one version of the bond because investors are taking an each-way bet on gold prices.

Gold is seen as a short-term safe haven for investors in times of uncertainty and the war in Iraq may have contributed to a revival of interest, particularly from institutional investors who are waiting to get back into equities.

However, investors who choose just one version of this bond risk ending up with nothing more than their original capital if prices do not move much and if they move the wrong way.

The London Bullion Market&#39s afternoon fixing spot price of gold per troy ounce rose from 203.216 points on October 30, 2003 to 210.798 points on April 30, 2003 &#45 an increase of almost 4 per cent.

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