Sharps Pixley opened its gold shop in St James last year
At Baird & Co’s gold refinery, boss Nick Hammond is sorting through a tray of scrap jewellery. Bracelets, necklaces, a horse pendant (called a “banger” because it is hollow, and could explode under high heat) and a military medallion dated 1895 are all destined for the furnace. “It’s sad, but we can’t hold them back - they all go in the pot,” Hammond says, pointing out that Baird would have paid around £30,000 to pawn brokers and other dealers for the contents of the tray.
Baird’s high-security factory, on an industrial estate in East London, is home to the UK’s only gold refinery. The family-held business, which celebrates its 50th anniversary this year, is a supplier of gold bars to the Royal Mint and one of the UK’s biggest producers of gold wedding bands. It has just opened a showroom and vault in the Hatton Garden area of London, hoping to lure new customers into the world of gold. “If you want long-term exposure to gold, you have to make the case for physical gold,” says Hammond.
The yellow metal is famed for its status as a safe haven and a store of wealth in times of uncertainty, but is there really a growing demand for physical gold? And how are companies exploiting the opportunity?
Chief executive Ross Norman calls Sharps Pixley's store “a one-stop shop”
Global demand for gold bars and coins rose 9pc in the first quarter of year, according the World Gold Council, despite a relatively flat market. London remains at heart of the trade: in May alone, it cleared 20.8 million ounces of gold in transactions worth $25.8bn. The exact amount of gold in the City’s vaults has always been a mystery, but for the first next month the London Bullion Market Association will publish hard data on the gold its members hold.
With revenues of £665m, Baird is accustomed to turning out gold bars, coins, jewellery, bespoke items and industrial products for a range of suppliers. Its new shop is an attempt to “build the brand” and take some of the complexity out of holding gold, Hammond explains. The product itself is not “over complicated”, he says, and the market is highly liquid - Baird for example will always buy back gold from its customers at a small discount. But finding a trusted supplier and knowing where to store it has been a problem.
Baird & Co refines gold in East London
“Armoured couriers won’t go to private residences,” Hammond says. “A lot of insurers won’t touch it. If they do, you’ll have to spend a lot on security.” Baird offers vaulting services and imposes stringent checks on its suppliers and buyers to comply with anti-money laundering rules. “Gold is very portable and unidentifiable - there’s no central depositary and it can be melted down,” Hammond says, explaining why the metal has always been prized by the criminal fraternity. “We are very, very cautious about our supply chain. [Buyers] have to show evidence of where their wealth came from or be prepared to discuss it.”
Once people get gold in their hands, they understand it, the tangibility of it
Ross Norman
The fact that gold can be endlessly recycled is to the benefit of Baird, which buys primarily scrap gold. This is boiled up in vats of chemicals in the centre of its refinery - a Willy Wonka glasshouse of tubes and funnels that turns rough grain (or “cornflakes”) into sand and then into fine grain, which resembles tiny nuggets. For the first time Baird is also looking at primary sources, such as miners in Africa, to supply gold. Hammond describes his firm as a “just in time” business; storing the metal is expensive, so it turns over product as quickly as possible. “It’s a volume game,” he says. With margins so thin, Baird has to minimise wastage: “The last time we changed the doormat, we recovered £6,000-worth of gold,” Hammond claims.
Vaulting is an important part of the service
Baird is not the only UK firm to branch out with a high-street gold shop: Sharps Pixley - owned by German group Degussa - opened its St James showroom and vault last year. Chief executive Ross Norman calls it a “a one-stop shop” to make gold “more accessible”. “It’s not just for the privileged few,” he says. “Investment gold starts at 1g - so about £40.”
Norman admits his shop is “experimental” but argues that “physical demand is incredibly strong”. The “UK mindset”, he adds, has always preferred property to gold - unlike Germany, where gold investing is a much bigger part of the culture. He says this attitude is changing: “We sold £40m of gold in our first year and are looking to do £100m in turnover this year - that’s 1.3 tons and 3.4 tons of gold respectively.”
Inside Baird's refinery
Rob Halliday-Stein, chief executive of Bullion By Post, also set up his business with a view to making gold investment “more accessible”. The online platform, established in 2008, turns over £100m a year, selling bars and coins such as Sovereigns and Britannias to investors and collectors across the UK. It offers secure delivery up to a value of £50,000 as well as storage.
“Most people are not looking to sell it,” says Halliday-Stein. “Once they get it in their hands, they understand it, the tangibility of it.” A former head of digital for Asda’s clothing brand George, Halliday-Stein argues that the basics of selling gold online are very similar: “A good website, and good customer service.”
Most Bullion By Post shoppers dip their toe into the market with a small purchase before buying more. Many speak to its dealers on the phone first: “We’re not all online - it’s about building that sense of trust,” says Halliday-Stein. While most take delivery to their homes, “we don’t ask them where they keep it”, he adds. “Probably quite a lot hide it. Even a 1kg bar is only the size of an iPhone, so it’s very small.”
Gold is recognised as a store of wealth and a safe haven
In investing terms, gold has no “yield”, as it does not generate interest. When the US Federal Reserve puts up rates, as it has done recently, it often knocks the price of gold, because bonds and savings accounts become more attractive. Gold has slipped in the last month, though it is still up 6.5pc this year.
Joni Teves, an analyst at UBS, believes that US rate rises will remain the “strongest driver” of the gold price for the foreseeable future, but that the metal is “trying to form a bottom around this level”, of around $1,220 an ounce. Political uncertainty remains an important factor: “For those that are long [term investors] in gold, it strengthens the argument for having it in their portfolio.”
The last time we changed the doormat, we recovered £6,000-worth of gold
Nick Hammond
Most dealers believe investors’ faith will not be shaken by changes in the gold price. The Fed will be limited in how high rates can go, Halliday-Stein argues, because the world has become used to “cheap money”. “There’s a lot of debt out there and an increase in interest rates is likely to cause some stress,” he says. Volatility in gold is “good for business”, he adds: “When it’s flat, people just tend to sit on their hands.”
Britannia coins from Sharps Pixley
Hammond is equally bullish, believing his company can capitalise on the changes he sees in the market. “Gold has established itself as having a part to play in asset allocation in the minds of wealth managers,” he says.
Norman concedes that gold remains “a deeply minority sport”, but insists: “Where gold really performs is in the long term - it maintains its purchasing power over time. You could use it to buy a suit of armour 500 years ago. You could use the same amount to buy one today. Try doing that with cash.”
