Investors may take shine to gold fund

GOLD hit $401.35 an ounce - its highest level in seven and a half years - just as a fund was launched that allows private investors to buy into it cheaply for the first time.

The metal, which has risen 60% in three years, briefly touched $403.

The 'pot of gold' fund, Gold Bullion Securities, plans to begin trading next Tuesday. It is being launched as an open-ended fund, trading at net asset value. Each of its shares will be backed by one tenth of an ounce of gold.

GBS is ready, in theory, to buy up to 100m ounces to back up £23bn worth of shares.

At present, the shares would cost about £23, and look more appealing than costly shares in mining giants. Benchmark Newmont is trading at 33 times forward earnings.

Launched by the World Gold Council, GBS should help to stimulate demand for investors.

This is good news for the big five mining companies who own the council, which plans to offer similar funds in other markets around the world.

It recently began trading in Australia. With management fees of only 0.3%, or 70p a year for a £232 ounce, the fund is unlikely to make many profits.

But the promoters will not worry if it succeeds in boosting demand. The fund's hoard is held by HSBC in a London vault.