The price of gold hit a new all time high of £670 ($1,070) per ounce in mid-October, as it continued its formidable run on the back of a weak dollar.
Long considered a safe haven for investors, gold has risen in value by almost one third in the past year, with some analysts predicting that it could reach over £5,500 ($3,500) an ounce within the next three years.
And as the popularity of this precious metal has risen, so has interest in its insurance. As the world’s largest market for bullion dealers and gold mines, Lloyd’s has seen premium volumes rise.
Gold fever
The financial crisis gloom has led many investors to seek refuge in gold, said Gary Tredgett, underwriter for specie and fine art at Ascot Underwriting. “With the dollar weakening we have seen the price of gold reach an all time high – over £670 ($1000) per ounce. More and more financial institutions and indeed other companies are looking to increase their precious metals holding for added security and further investment opportunities.”
Demand for gold also rises during the Indian wedding season, which runs from late September to December, said Robert Read, fine art underwriter at Hiscox. India is the world’s biggest market for gold with demand for gold jewellery peaking during the wedding season and the Hindu festival of Diwali.
Wealthy individuals are also buying more gold as investment returns in other asset classes fall, said Nigel Vickary, a broker in the species and fine art unit of Willis. And there has also been significant growth in the market for recycling gold, he added.
Companies that encourage people to trade-in their gold and jewellery in the United Kingdom and the United States have seen their revenues double.
High values
The main buyers of insurance in the gold sector are the mining companies and bullion dealers that extract the precious metal from the ground and transport it all over the world.
Over 80% of the world’s mining companies buy their insurance at Lloyd’s, said Philip Turner, a broker in the specie practice at Marsh. London is the principal insurance market for gold insurance, and regularly insures sums in excess of £1.6bn ($1 bn), he added.
And demand from mining companies and bullion dealers for insurance cover has been increasing as the value of gold has risen, said Read. As the price of gold goes up, these companies have to buy more insurance to cover the higher values, he explained.
The sums insured can get so big that it can be difficult to find the market capacity to provide the required high limits, but this is not yet the case with gold, Read said.
The high price of gold has promoted bullion companies to buy higher limits for gold in storage over the past six months, said Vickary. Lloyd’s can cater for limits as high as £2.4bn ($1.5bn), and even though limits purchased are up by as much as 30%, there is still plenty of cover available in the market.
There has also been a big increase in insurance buying from the refiners of gold, Vickary said. The high price of gold has boosted the “cash for gold” market and underwriters at Lloyd’s have developed cover for this business.
Gold crowns
An unusual area where Lloyd’s has responded to increased demand for gold insurance has been in the area of dentistry. Gold is used in many industries – from catalytic converters to electronics – but there has been a significant increase in people using gold and platinum to replace teeth or plug cavities, said Vickary. With fillings costing as much as £1,600 ($1,000) a piece, this has created a sizable market for the bullion dealers that supply the sector, he said.
