Though it is over 150 years old, Edgar Allan Poe's The Gold Bug may make a fun gift this season. With the gold price hitting near-daily records, the story about the hunt for a buried treasure after a bite from a gold-coloured bug has topical appeal, and is said to be one of the first uses of the description for gold lovers. Other gold-themed gifts might include gold coins or stakes in gold funds, which are surging in popularity.
Five years ago, gold funds were also causing ripples of excitement. Investors were, for the first time, able to buy gold via an instrument traded on the stock exchange, avoiding the complications of futures or of deciphering mining company strategies. Offered by the World Gold Council and State Street Securities, the gold exchange-traded fund launched in 2004 has proved to be a winner. Now with assets of more than $40bn, it has made money every year and, for those investors who took stakes at the beginning, it has made them over 150 per cent.
Gold's lustre is attracting more followers now. There are still plenty of gold bugs who believe it will always outshine, especially as the value of paper currencies threatens to plunge and inflation looms. Other investors are not driven by doomsday scenarios but see value in gold relative to other assets, from the supply of money to crude oil and equities. Others merely buy into diversification arguments.
One recent catalyst pushing gold higher was buying by central banks, such as India's $6.7bn purchase earlier this month. But, as Ticonderoga analysts point out, State Street's gold ETF is among the biggest holders of gold in the world. Indeed, ETFs backed by physical gold are now buying the equivalent of over 20 per cent of new gold production, nearly double last year's levels. Wealthy individuals have long supported luxury goods. Their thirst for gold funds might just give a further boost to this precious metal too.