THE Christmas season is one of the busiest times of the year for sales of gold jewellery. In the world of investment, gold is also highly sought after, but the current craze for this commodity has nothing to do with the festive season.

Last week the price of gold hit a 16-year high of $455 (€342) an ounce, up from $375 in September 2003 and almost double the 1999 price of $253. Have investors missed the boat or is there a chance that prices can return to the 1980 high of $850 an ounce? One of the drivers behind the current boom is the fall in the dollar. “The 16-year high in the gold price coincided with a 12-year high for sterling against the dollar,” said Ben Yearsley of Hargreaves Lansdown, an independent financial adviser. “Gold is largely up for the same reason the dollar weakened: worry over the American economy and what the Fed (the US central bank) is going to do. It seems quite happy to have a weakish dollar, so that will have an impact on the markets.”

The price of gold goes up when the dollar falls because investors see the precious metal as a hedge against the greenback and as a way of diversifying their portfolios. Gold is also perceived as a hedge against wider economic or geopolitical uncertainty, says Nigel Poynton, a director of NCB Wealth Management.

Supply-side issues have contributed to the price of gold. These include consolidation within the industry and an agreement between central banks last year to limit annual sales of the commodity. Many international analysts believe the dollar has further to fall, which could augur well for those who want to buy into gold at this late stage. Poynton is relatively cautious on this topic. “Our view is that if the dollar remains as weak as it is now for the foreseeable future, then gold will be well underpinned and should move slightly higher.”

Mark O’Byrne, a director of the recently launched Irish precious metals investment company Gold Investments, is more optimistic, but stresses that gold is a buy-to-hold investment.

“We are loathe to give short-term forecasts on the gold price,” he said. “It is very much a long-term investment. Many analysts believe gold has a good chance of taking out the 1980 highs, but over a five to 10-year time frame. Oil is now at historic highs, copper is at historic highs, all major base metals and gases are at historic highs. Gold is actually the laggard.”

Investors who believe there is further potential to make a profit can gain exposure to gold in different ways. The first is to purchase bullion in the form of wafers, coins, bars or jewellery through brokers such as O’Byrne’s firm, which has a minimum gold purchase of 10oz.

The most popular options tend to be 1oz coins, such as the South African Krugerrand, the US Eagle or the Canadian Maple, which can be bought from dealers who add a premium of 4%-7% to the current market price of an ounce.

The more gold purchased, the lower the premium. Those who have €180,000 or so spare to buy a 28-pound London Good Delivery Bar, for example, should pay a premium of about 1.5% or less. There is no Vat on purchases of gold within the European Union.

Most Irish buyers of bullion take possession of their physical gold, says O’Byrne, but those who do so should inform their house insurer and expect to pay a higher premium. Alternatively, they can place the gold in storage at an annual cost of 0.5%-1% of its value. They should remember that physical gold does not earn any interest or pay dividends.

Many analysts believe that buying gold directly is inadvisable. “What is the point of doing that? Yes, you can melt it down and make some trinkets, but I am not really a fan of that approach,” said Yearsley. “I would take a more diversified approach and go through a more generalised commodity fund rather than focusing on just one strand such as oil, gas or gold.”

Such funds include the Merrill Lynch Gold & General Fund, rated by Standard & Poor’s as the best-performing British unit trust fund in 2002.

Another option is to invest in gold mining companies, such as AngloGold, Newmont Mining Corporation, Barrick or Harmony Gold Mining, but the share price of these firms does not always rise to the same degree as gold itself.

Irish investors also have a new option: streetTRACKS shares offered through NCB. These are shares in an exchange-traded fund that tracks the gold price as closely as possible. “Shares are currently trading at about $45.40, a tenth of the price of an ounce of gold. It is a cheaper, more transparent way of gaining exposure to gold,” said Poynton.

No matter how investors choose to buy gold, analysts advise that they should limit their holding to just 5% of their overall investment portfolio.