The price dipped 3 per cent this week as investors took profits and the dollar bounced, but experts say that the long-term trend is upwards.

A combination of political uncertainty, economic fears and the slide in the dollar is being blamed for the yellow metal’s strength. As Jill Leyland, economic adviser to the World Gold Council (WGC), puts it: “Bad news is good news for gold.”

And since the US election last month, Paul Walker, of the gold consultancy GSMS, says that “there is now a recognition that the status quo will be continued by the Bush Government”, meaning upheaval in Iraq, continuing US deficits and low interest rates.

But there is a new factor this time round. Last year, the WGC broke launched the first investment vehicle backed by real bars of gold to be traded on a stock exchange. This so-called exchange-traded fund (ETF) has been joined in the past month by a US bedfellow quoted on Wall Street.

The success of StreetTracks Gold Shares is such that in its first five days on the market it pulled in enough investors to buy more than 100 tonnes of gold, valued at a cool $1.5 billion. Meanwhile, Barclays is close to launching a rival US-traded ETF.

Not everyone views ETFs with equanimity. Tony Baird, managing director of Baird & Co, a London bullion dealer, says that customers have withdrawn business from his company to invest in these gold-backed instruments. He criticises the fees and the difference in the buying and selling price of such vehicles as the WGC’s UK-quoted Gold Bullion Securities.

This ETF charges a management fee of 0.3 per cent a year, while the buy-sell spread quoted on its website is about 0.33 per cent of the price. Mr Baird says that an investor would pay less if he or she bought one of the gold bars sold by his firm and kept it in storage.

Other ways of jumping on the bandwagon include buying gold coins. Coins such as the South African Krugerrand, the British Sovereign and Canadian Maple Leaf remain the most popular, Mr Baird says. A 1oz Krugerrand would have cost £242.25 earlier this week, a £14 premium to the underlying gold price.

More adventurous investors have made their riches from gold through the Merrill Lynch Gold & General fund, run by Graham Birch. It has tripled in value in five years by channelling investors’ money into shares in the companies that mine the metal. However, Mr Birch gives warning that investing in gold shares is much more volatile than investing in the bullion itself.

Whatever vehicle you choose, participants generally see rosy times ahead. Even the prospect of further massive gold sales by European central banks, which have unloaded about 2,000 tonnes of gold in the past five years, does not deter the bulls.

Mr Birch accepts that there may be hiccups, but the weakness of the dollar and continuing low interest rates should more than underpin the price. “I think the trend we have seen in the past few years will continue into 2005,” he says.

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