Getting your hands on precious metals is becoming much more accessible and is a welcome - and diverse - alternative for smaller investors, writes Laura Slattery

There is a new gold rush in town. Irish investors dazzled by the allure of gold bullion are pouring up to 10 per cent of their portfolios into it, while bonds where the returns are linked to the performance of precious metals are swiftly becoming oversubscribed.

However, while the Irish were quick to catch gold fever in the 19th century migration to the mines of California, they may have ignored the 21st century revival in the fortunes of the yellow metal for too long.

"People think gold is just for Swiss bankers and how would they, in Ireland, get their hands on gold," says Stephen Flood, director of Gold Investments, a precious metals brokerage based in Dublin.

Most of its clients have been UK investors, according to Flood.

"Ten years ago, gold was really only bought by high-net-worth people with large portfolios - it was very exclusive. Irish people never had money before, so they never had as much need for wealth preservation."

But gold is becoming much more accessible to smaller investors, Flood says. Gold Investments requires a minimum investment of just €2,000 if the investor wants to take physical possession of the gold themselves and €3,500 (roughly 10 ounces of gold) if the investor wants the bullion stored in the Delaware Depository in the US, he explains.

"Many people are uncomfortable with keeping physical gold in their homes. The insurance costs are 1 per cent of the value, which will eat into their returns," says Flood.

The brokerage, the only one based in the Republic, has been appointed an approved dealer for the Australian-based Perth Mint certificate programme, which offers investors safe, hassle-free storage facilities for a minimum of €8,000 worth of either allocated or unallocated gold bullion.

The company is hoping that the deal will give it a platform to attract more customers here. In October, Gold Investments will exhibit its glittering wares at the Money Show exhibition in the RDS.

"The Perth Mint is in a very safe location geographically," says Tina Bullock, client relations executive from the mint. "There are only two roads to get out of Perth, north and east, and then the sea, and you won't get very far in a boat."

The Perth Mint holds $500 million Australian dollars (€312 million) worth of precious metals - gold, silver and platinum - and its certificate programme is guaranteed by the government of Western Australia.

It takes nine working days for investors in this part of the world to receive their certificate. According to Flood, gold investors don't usually get carried away with the "old money" cachet of owning gold and display framed certificates in their dining rooms. Most investors are private about their holdings and, to them, gold is a commodity like any other.

If they are distracted by the status symbol, they come to their senses quickly and "get caught up in the practical, economic side".

So what is the economic argument for gold?

Investment in gold is a way to protect wealth from the inflationary consequences of a weak dollar and rising oil prices. Gold also tends to perform well, or at least hold its own, during periods of volatility on the equity markets.

The most recent gold rush started in 2000, around the time equity markets started to wobble, and since then the US dollar price of gold has climbed 75 per cent from about $285 (€231) per ounce to highs of more than $450 per ounce. The euro price of gold rose 25 per cent over the same period from €270 per ounce to €340.

Gold has historically tended to move up in price in tandem with oil, Flood notes. If the predicted "super spike" in oil prices occurs, the price of gold could explode with it.

For investors with 90 per cent of their portfolio in interest-rate exposed investments, a 10 per cent holding in gold could take the sting out of the negative economic effects of high oil prices, Flood says.

"We've had chief executives of major Irish firms approaching us. They are looking to offset dollar risk in their retirement portfolios. We would recommend about a 5-10 per cent position in gold over a 10-year horizon and beyond."

But investors who are only thinking of going for gold now may be put off by the gains of the past few years: the best of the returns could have been and gone. Recently, the dollar price of gold has slipped back to $420 per ounce, while the euro price is now about €330 per ounce.

"A lot of money has been invested in gold over the last year. That's not to say that there won't be more gains, but it's a question of whether you've missed the boat really," says Alan McQuaid, chief economist at Bloxham Stockbrokers.

"Traditionally, gold is a hedge against inflation. If the dollar is weakening, that's inflationary, but the trend now is that it is strengthening, so you might not be so bullish on gold," he says.

"But it's quite possible the dollar might weaken in the second half of the year," McQuaid adds. "Taking a two- or three-year view, the dollar has to weaken on the global exchanges to redress imbalances in the global economy."

Gold is definitely a viable alternative for investors, he believes.

"It probably hasn't taken off as much here as it should have done. I wouldn't be jumping in now, saying put loads of money into it, but I wouldn't rule it out."

There are ways to invest in gold that don't involve purchasing bullion. Investment bonds offering exposure to commodities - albeit in an indirect way - are being introduced and promoted by banks and investment houses.

As derivative contracts with plenty of exposure to equities, these bonds may not prove to be as effective a hedging mechanism as pure physical gold, but they would allow investors to benefit from any upswing in prices.

BDO Simpson Xavier's Golden Dragon Bond invests equally in Asian equity indices and commodities, including gold. It was oversubscribed on its introduction last October and the firm is now closing a second trade. By the end of the month, more than €50 million of its clients' money will be invested in the six-year bond.

Niall Duggan of BDO Simpson Xavier says that it is both the Asian markets and the commodities element of the bond that is attracting customers.

"If you believe in the Asian markets, by extension you believe in commodities, because the commodities market is being driven by Chinese and Indian demand."

The argument that the best returns for gold may have passed is a legitimate one, Duggan admits.

"But gold is still a safe haven and we live in an uncertain world in terms of interest rates, inflation and geopolitics.

"Gold has also recaptured its status as a quasi-currency. If you feel the dollar, and to a lesser extent the yen, is under pressure, gold is a good alternative," says Duggan.

"It's been the first investment product in the last four or five years that has really got people excited. Property has been the be-all-and-end-all, for all the right reasons, but people's investments should be that bit more diversified."