Humans have always had a strange fascination with gold – from bars, coins and jewellery to gold leaf, gold dust and gold nuggets.
In whatever form, throughout history we’ve turned to gold at times of uncertainty and continue to do so today.
The price of gold has risen an impressive 30.90%* over the year to date in sterling terms, outpacing both shares (UK and global) and UK government bonds (gilts).
But, why has the price of gold risen so much and should you consider holding the shiny stuff?
Why has the price of gold risen?
Gold has historically been popular during times of uncertainty because it has a reputation for holding its value when other assets are falling.
In reality this relationship isn’t quite as straightforward as most people think, not to mention potentially self-fulfilling, but gold continues to attract investors during times of uncertainty.
This year has been a good example.
With tensions rising in the Middle East, a war still simmering in Europe and the equity markets being led by a small handful of stocks, many investors have turned to gold as something of an insurance policy.
According to the World Gold Council, retail investors now hold 45,000 tonnes of gold in bars and coins. That’s around 22% of the gold mined throughout history.
In fact, retail ownership of gold is likely to be far higher than this. That’s because physical gold is only one way to own gold these days. You can also own it through ETFs or even digitally through digitally tokenised gold.
There’s another driver as well though.
For as long as most of us can remember, the US dollar has been the world’s reserve currency. This means that central banks, particularly those in countries with less stable currencies, have kept a large part of their reserves in dollars.
But with governments around the world freezing Russian assets after their invasion of Ukraine, many emerging market central banks have been starting to diversify their reserves into something a little more tangible. Something they can physically hold onto themselves and not fear that anyone can freeze.
In other words, they’ve been buying gold.
These forces combined have led to gold hitting new highs more times this year than I can count.
Will this inexorable march continue?
Truth is, I don’t know and neither does anyone else.
However, if you are looking to hold some gold, it should only form a small part of a well-diversified portfolio. That’s because investing in gold isn’t for everyone. It’s a specialist market area so investors should be prepared to take a long-term view and accept the associated volatility.
If you’re looking to invest in gold, here are three investment ideas that can help.
This article isn’t advice. Remember, investments can rise and fall in value so you could get back less than you invest. Past performance also isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.
Remember, investing in funds and exchange traded products isn’t right for everyone. Investors should only invest if the investment’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of an investment before they invest, and make sure any new investment forms part of a diversified portfolio. Also, past performance isn’t a guide to future returns.
iShares Gold ETC
An ETC, or Exchange Traded Commodity, is traded on a stock exchange, like a stock, but tracks the price of a commodity or a commodity index.
The iShares Physical Gold ETC tracks the gold spot price. This is the current price in the marketplace at which gold can be bought or sold for immediate delivery.
It could be a good way to benefit from any potential moves in the gold price, without having to own the physical commodity.
This fund has the option to use derivatives, which can add risk. As this is an offshore fund, you’re also not normally entitled to compensation through the UK Financial Services Compensation Scheme. Charges are taken from capital, not income, as this ETC doesn’t produce any income.
30/09/2019 To 30/09/2020 | 30/09/2020 To 30/09/2021 | 30/09/2021 To 30/09/2022 | 30/09/2022 To 30/09/2023 | 30/09/2023 To 30/09/2024 | |
|---|---|---|---|---|---|
iShares Physical Gold ETC | 20.85 | -11.57 | 15.72 | 2.21 | 27.79 |
Bloomberg Gold | 19.56 | -12.03 | 13.88 | 1.40 | 28.94 |
Troy Trojan
If you’d rather own a fund with a mix of assets and let the manager do the hard work of deciding what to buy for you, then you could consider the Troy Trojan fund.
The managers, Sebastian Lyon and Charlotte Yonge, aim to grow investors' money steadily over the long run, while limiting losses when markets fall.
The fund is focused around four 'pillars'.
The first contains large, established companies Lyon and Yonge think can grow sustainably over the long run, and endure tough economic conditions.
The second pillar is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. Some of the fund is also invested in UK gilts.
The third pillar consists of gold-related investments, including physical gold, which has often acted as a ‘safe haven’ during times of uncertainty. The fund tends to have around 10% invested in the yellow metal over time.
The final pillar is ‘cash’. This provides important shelter when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.
The manager has the flexibility to invest in smaller companies, which, if used, adds risk.
The fund is concentrated which means each investment can contribute significantly to overall returns, but it can increase risk.
30/09/2019 To 30/09/2020 | 30/09/2020 To 30/09/2021 | 30/09/2021 To 30/09/2022 | 30/09/2022 To 30/09/2023 | 30/09/2023 To 30/09/2024 | |
|---|---|---|---|---|---|
Troy Trojan | 7.53 | 9.29 | -0.83 | 0.44 | 7.89 |
UK Retail Price Index | 1.13 | 4.86 | 12.64 | 8.86 | 2.70 |
FTSE All-Share | -16.59 | 27.89 | -4.00 | 13.84 | 13.40 |
Ninety One Global Gold
A slightly less obvious way to benefit from the rise in gold price is to buythe companies that actually get the gold out of the ground – gold miners.
They stand to benefit as the gold price rises. That’s because the cost of mining the gold doesn’t change, but higher prices mean they can sell it for more.
However, there’s often a lag between the price of gold going up and the share prices of gold miners increasing.
While you could buy shares in gold miners directly, consider investing through a fund instead which will offer diversified exposure to lots of different gold miners.
One fund that does this is the Ninety One Global Gold fund – run by industry veteran George Cheveley.
This fund invests the bulk of its assets in companies involved in gold mining around the world, although it might also hold a small amount in other precious metals, like silver.
Around 50% of the fund is invested in Canada, which is home to almost half of the world’s publicly-listed mining and mineral exploration companies.
We believe that funds like this could stand to benefit if the demand for gold, and the gold price, remains high.
The fund is concentrated and has the flexibility to use derivatives, both of which add risk.
30/09/2019 To 30/09/2020 | 30/09/2020 To 30/09/2021 | 30/09/2021 To 30/09/2022 | 30/09/2022 To 30/09/2023 | 30/09/2023 To 30/09/2024 | |
|---|---|---|---|---|---|
Ninety One Global Gold | 43.01 | -30.40 | -1.48 | 6.49 | 35.00 |