Well, with the gold price zooming up again, it is rather fitting that a writer with a name such as GoldFinger would want to reflect a bit on the market for the yellow metal. Those fellows at BullionVault, a UK-based investment and trading firm, claim it has driven a big drop in the cost of trading in the stuff.

BullionVault, set up four years ago, now has more than 13,000 clients around the world, of whom 7,800 are in the UK. The profit margins are wafer-thin: it made a pre-tax profit of £1.75 million ($2.55 million) on a turnover of £267.7 million last year. The thin margins may be part of the fact that this firm has driven down the average cost to private investors of trading in gold to as low as 0.12 per cent, from what had once been around 5 per cent.

The heart of BullionVault's service was to build on the existing vaulting services available to professionals in London, New York and Zurich. The company’s internet-based services give a retail-oriented wrapping to these professional vaults, granting much wider access to the big-bar-gold they store.

The first step was to create a simple legal basis allowing for personal part-ownership of vaulted big-bar-gold. This has eliminated counterparty risk and removed the need for expensive and complex trusts. Counter-party risk is rearing its head as a big concern for wealthy investors, so this is an important feature of the firm’s service.

Professional big-bar-gold is then bought on wholesale markets in London, Zurich and New York, and immobilized in a single professional market vault in each location.  From here its ownership is then distributed to retail buyers.  Because both sellers and buyers keep their gold in the same vault it means the settlement of large numbers of retail trades can be performed entirely electronically, without the high cost of a physical shipment of gold.  The cost savings are dramatic.

An internet dealing mechanism was created which allowed private investors to act both as liquidity consumers and as liquidity providers.  For the first time this meant they could cut out the market’s middlemen and quote their own buying and selling prices direct to each other, safe in the knowledge that the gold they were trading was underwritten by the trusted integrity controls of the professional bullion market.

Tax changes have helped drive the business. Following the 2006 Finance Act, changes in UK law enabled professional-market gold bullion to be held in Self Invested Pension Plans, a tax-advantaged pension savings model for affluent UK savers. Given that the price of gold has been so strong in the past year while other asset classes have been hammered, this is a welcome move.

The firm has recently won a Queen’s Award for Enterprise, and is feeling suitably pleased with itself. And it must feel a lot more pleased than the currently embattled UK prime minister Gordon Brown, who as finance minister, will be known, among other things, as the man who sold the bulk of the UK’s gold reserves for a fraction of the current price. Oh, such are the advantages of hindsight.