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Julian Gibbs

The recent rise in price in gold from a low of around $252 an ounce to over $320 at the present time is due to a number of factors. First, most investors have been disappointed by the recent performance of shares and are seeking an alternative investment. Second, political uncertainty throughout the world means there is a higher demand and, third, production has been falling in some areas.

However, investing in gold bars or coins is not the best way of making money. It is far more sensible, despite being rather more risky, to invest in the shares of gold-mining companies. This is because of the high gearing that a rise in the price of gold gives them. A 5 per cent rise in the price of gold often means a 20 per cent rise in the profits of gold-mining companies.

In South Africa, in particular, the cost of operating a mine in local currency terms is low compared with the profits made from sales of gold in dollar terms.

The best way for the UK investor to buy gold is through the only specialist gold unit trust, the AAA-rated Merrill Lynch gold & general fund. Over the past year, it has risen by 82 per cent and by 130 per cent over the past two years. Furthermore, it can be bought through Pep transfers and Isas.

While this fund can be highly volatile, the outlook for continually good results from gold producers should mean that their shares will continue to rise.

The Merrill Lynch fund invests in the top gold-mining companies of the world. Around one third is invested in South Africa, one third in North America and the balance in other African countries, Latin America and South-east Asia.

This is certainly a fund I can recommend as part of all growth investors&#39 portfolios, if they are prepared to accept volatility.


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