Gold investors get physical amid growing fears of global recession

Exposure to physical gold is increasing in popularity in the structured products market as investors seek insurance against a long-term global downturn. Prices for gold, which has traditionally been viewed as a safe haven during times of market trouble, have had broad and volatile divergencies between currencies.

While prices increased 37% in sterling and 18% in euros, performance was flat in US dollars, according to a research report by exchange-traded commodity provider ETF Securities. Combined flows into the provider's Physical Gold and Gold Bullion Securities rose by $1.6 billion in 2008, on the back of what it described as strong demand for physical gold, with inflows continuing even as prices fell.

Benchmark gold index performance has also been volatile in the financial crisis, with the S&P GSCI Gold Index rising 2.9% by mid-December 2008, after increasing 13.77% in November in the wake of a 18.4% fall in October.

Deutsche Borse launched reverse convertibles offering exposure to gold to Luxembourg investors in November 2008. The fully liquid, listed notes are zero-coupon bonds denominated in gold that can be exchanged for one gram of physical gold at investors' request.