Bullion Vault: Gold Traders Increase Ninefold Over Last Five Years

Speculators and safe-haven investors have ploughed hundreds of millions of pounds in to Gold since the financial crisis began.

They were tumultuous days: Northern Rock had just been nationalized the UK was lurching into recession and in the US one of Wall Street’s biggest investment banks was on the brink of bankruptcy. But one financial asset was soaring – Gold.

It is five years this week since the price of an ounce of Gold shot through the $1,000 level – and there have never been more private gold traders and individual investors keen to keep their cash in the precious metal.

According to Bullion Vault, which operates vaults in London, New York and Zurich there has been a ninefold increase in the number of gold bullion traders in the past five years, with Britons among the most enthusiastic buyers. Most of them, say BullionVault, choose to keep their heavyweight investment in Switzerland.

More than 45,000 people have used the company to buy bullion, and between them they now own 32.9 tonnes of Gold Bars, worth £1.11bn – with British households accounting for £562m of the total, 10 times the value of British Gold Holdings in their vaults five years ago.

Adrian Ash, BullionVault’s head of research in London, said: "Consumers decide to put their hard-earned money into physical gold for many reasons. In the main it’s to diversify away from other investment markets, to hedge against inflation or as a ‘crisis insurance’ if they fear global financial instability. Whatever the reason it’s clear that the last five years has seen unprecedented demand for gold."
That demand, when supply is so limited, pushes the price higher. All the Gold in the world would fit in a cube only about 60ft square.

The man described as the world’s most successful investor, Warren Buffett, is not a fan: “Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

But, with a few wobbles, the price has stayed high. Over the past five years, UK investors could have banked a 115% rise if they bought gold with sterling.

Barclays Bank is also keen to cash in on the UK’s new passion for gold - it opened its first gold vault last September. The secret facility, somewhere within the M25, is one of the largest in Europe and stores gold, silver and platinum, as well as palladium and rhodium.

Danny Cox of financial advisers Hargreaves Lansdown said: “Over the last five years the financial crisis pushed investors towards gold as a safe haven asset and we have seen central banks such as Russia and China being big buyers of gold. Speculative investors have also been attracted and there has also been an increase in demand for Gold Jewelry, particularly from India and China.”

There are many ways for investors to gain from the rising gold price – some buy shares in listed mining companies, or invest in collective funds. But many have been personally buying bullion in the past four years.

The booming economies of China and India have helped push the price higher. India is traditionally the world’s biggest consumer of gold, and imports are second only in value to crude oil. The metal is lavished on marrying couples. There are 10m weddings in India every year and prices usually rise ahead of the wedding season, which kicks off in September. More than half the money Indians spend on gold goes on glittering wedding gifts and demand for jewelry was up 35% in the final months of last year.

Newly middle-class Chinese buyers are becoming equally big fans of the precious metal. According a the World Gold Council’s report last month, Chinese consumers are buying increasing amounts of gold for jewellery and investments. Demand for both was at a record last year.

The price has been also been driven higher by some of the measures taken to combat the economic downturn. The Bank of England, the US Federal Reserve and the Bank of Japan have pumped hundreds of billions of dollars into the world economy in a bid to prevent a global slump - and that has helped pump up the gold price.

As a result, it has been a glittering investment. Yesterday Gold was selling on the London markets at $1,585 an ounce on Thursday, down 0.27% on the day before.

Traditionally, Gold does less well when stock markets are booming and the price has fallen back this year as Wall Street and the FTSE index have reached five-year record highs.

The logic is simple: unlike stocks and shares, gold does not produce any income, interest or dividends and the price depends solely on demand and supply. The World Gold Council said it expects jewelry demand for gold to fall in 2013 but says investment demand for gold “should again exceed historical averages as investors continue to focus on gold’s role as a store of wealth”.

But predicting the price of gold is essentially a mug’s game - Gordon Brown famously lost out by selling large chunks of the UK’s Gold Reserves between 1999 and 2002, getting a lowly price of between just $250 and $300 an ounce.

Five golden years

115%
Rise of the gold price since 14 March 2008 for UK savers who bought gold with pounds sterling.

32.9
Tonnes of gold bullion owned by BullionVault’s 45,500 users, worth over $1.68bn – more than the gold reserves of most countries. UK households make up half those users.

£562m
Value of physical gold owned by UK households via BullionVault – 10 times as much as they held in March 2008.

£1,243
Highest per ounce sterling price achieved for a gold bullion trade on BullionVault – dealt on September 6, 2011.

11kg
The largest mobile app purchase to date on BullionVault was this month, buying gold worth over £385,000 in the Zurich vault.

819%
Increase of number of gold bullion traders in the last five years.