When the world starts to look scary, investors often turn to assets which they perceive to be ‘safer’.
It seems now is one of those times.
The escalating war in the Middle East, together with ongoing conflict in Ukraine and Sudan is making the world feel like a risker place than it has for a while. Combined with persistently high levels of inflation, and investors headed for perceived safer assets in droves.
The most popular asset at times like this is gold. And now is no exception.
This article isn’t personal advice. If you’re not sure an investment is right for you, ask for financial advice. Investments and any income from them can rise and fall in value, so you could get back less than you invest.
Remember, past performance including yields isn’t a guide to the future, and no dividend is ever guaranteed.
Everyone's out for gold, but why?
It seems that everyone from shoppers to central banks want to own gold and this has driven the price to an all-time high.
Central banks wanting gold is perhaps no surprise – it diversifies the assets they’re holding, and we’ve seen a surge of demand from the central banks of China, Turkey and India.
More surprising is your everyday shopper buying gold – when Costco started selling 1 ounce gold bars on their US website last year, they sold out in just a few hours. And every time they’ve restocked, the same thing’s happened. It seems that the US shopper, at least, is keen to own something tangible and shiny.
Who benefits from the rise in gold prices?
Owners of gold, of course, but gold miners – the companies that dig the shiny stuff out of the ground – should also benefit.
The cost of mining the gold might not change, but they can now 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, and this has rung true recently.
Over the last year to the end of March, the price of gold has increased 9.67%*, but the FTSE gold miners index has declined 3.24%. This leaves us asking if there might be an opportunity now in the shares of companies that mine gold.
Prices of gold vs gold miners (%)
31/03/2019 To 31/03/2020 | 31/03/2020 To 31/03/2021 | 31/03/2021 To 31/03/2022 | 31/03/2022 To 31/03/2023 | 31/03/2023 To 31/03/2024 | |
|---|---|---|---|---|---|
Bloomberg Gold TR | 28.46 | -6.20 | 18.54 | 7.20 | 9.67 |
FTSE Gold Mines TR | 17.76 | 18.97 | 24.87 | -11.88 | -3.24 |
2 ideas for investing in gold
You could buy shares in gold miners directly. However, for many it will be more suitable to do so through a fund offering diversified exposure to lots of different gold miners, not just one or two.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’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 a fund before they invest, and make sure any new investment forms part of a diversified portfolio. Investing in such a specialist area is higher risk, and any investment should only make up a small part of a portfolio.
For more details on each fund and its risks, use the links to their factsheets and key investor information.
Ninety One Global Gold fund
The Ninety One Global Gold 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 such as silver.
The fund is run by industry veteran George Cheveley with more than 30 years’ experience.
Around half of the fund’s invested in Canada, home to almost half of the world’s publicly listed mining and mineral exploration companies.
Funds like this could stand to benefit if the demand for gold, and the gold price, remains high.
The fund’s concentrated and has the flexibility to use derivatives, both of which could add risk. As this is an offshore fund, you’re not normally entitled to compensation through the UK Financial Services Compensation Scheme.
Annual percentage growth
31/03/2019 To 31/03/2020 | 31/03/2020 To 31/03/2021 | 31/03/2021 To 31/03/2022 | 31/03/2022 To 31/03/2023 | 31/03/2023 To 31/03/2024 | |
|---|---|---|---|---|---|
IA Specialist TR | -13.22 | 31.30 | 5.93 | -0.85 | 9.07 |
Ninety One Global Gold I Acc GBP | 13.62 | 18.39 | 28.99 | -7.21 | -6.08 |
iShares Physical Gold ETC
If you’re not sure about buying mining companies, and would prefer to have exposure to the actual gold price, you could consider using an exchange traded commodity (ETC).
These can be a simpler way for investors to access specialist areas like gold. They’re bought and sold the same way as shares and aim to track the performance of the commodity.
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.
This fund has the option to use derivatives, which adds risk if used.
As this is an offshore fund, you’re not normally entitled to compensation through the UK Financial Services Compensation Scheme.
Annual percentage growth
31/03/2019 To 31/03/2020 | 31/03/2020 To 31/03/2021 | 31/03/2021 To 31/03/2022 | 31/03/2022 To 31/03/2023 | 31/03/2023 To 31/03/2024 | |
|---|---|---|---|---|---|
iShares Physical Gold ETC | 30.21 | -5.70 | 20.18 | 8.41 | 9.35 |
LBMA Gold Price PM USD | 30.53 | -5.54 | 20.35 | 8.55 | 9.48 |