In September, gold hit a 52-week high and the gold spot price is up over 13% year to date, hovering around $1,4600 per ounce. There are varying reasons behind this year’s rally, including the worries about the US-China tariff war, volatility in the oil market, talk of a global recession, uncertainty in Europe – partly because of the developments on the Brexit front and partly the upcoming UK general election – and rather volatile global equities.
Analysts are also discussing the near-term possibility that US dollar interest rates may go to zero and that pressure may be put on the US Federal Reserve Board (Fed) to introduce negative rates. If US dollar deposits see negative rates, smart money is likely to move into commodities, including precious metals such as gold.
All asset classes have their advantages and disadvantages. So far in 2019, gold is proving to be one of the best investment instruments. If you believe that the up move in gold will likely continue in 2020 too, then you can buy into gold in several ways.
Physical gold
In 2018, the global gold supply reached almost 4,500 tonnes. Approximately two-thirds of this amount came from mining and one third came from the recycling of gold. Most gold produced today is used for jewellery or investing purposes.
Over the centuries, gold has fascinated humans. People have always invested in gold through buying the physical metal, and the average person knows that the metal’s price tends to shoot up in turbulent times. We often hear gold described as a ‘safe haven’.
For example, between 2007 and 2011, during the global financial crisis, the price of gold went from about $700 per ounce to an all-time record price of $1,900 per ounce on 5 September 2011.
So, if you would like to buy the precious metal in the UK, the Royal Mint Bullion offers investors the opportunity to buy and sell not only physical gold, but also silver and platinum coins and bars.
Alternatively, investors can also consider physical gold exchange-traded funds (ETFs), such as the ETFS Physical Gold. The fund, which was launched in 2007, is large, well-known, and liquid.
We cannot know the future with certainty. However, for many people physical gold is an asset for defensive diversification.
Gold miners
Investing in gold miners may also add some sparkle to your portfolio. This year most miners have benefitted from renewed safe-haven demand for gold.
When a company owns a mine, it also owns all of the gold stored within it. However, I’d like to remind our readers that there may be geopolitical risks regarding the country where the mine is located. In other words, miners’ share prices tend to be rather choppy. Investors should also note that most gold stocks are low-dividend payers.
Are there any miners I think are worth backing? Within the FTSE 100 and FTSE 250, companies that mine gold include Chile’s Antofagasta, Mexico-based Fresnillo, Russian mining operation Polymetal, and Centamin, which focuses on the the Arabian-Nubian Shield.
When analysing gold mines, I’d look for growing production, a solid balance sheet, and high-quality mining assets combined with an improving outlook for gold.
Finally there are investment funds that invest in gold miners. Examples of such funds would be the BlackRock Gold and General, UBS Solactive Pure Gold Miners ETF, or iShares Gold Producers UCITS ETF.
