FTSE investors: Can the gold price reach a new record high in August?

Gold shares, including miners and ETFs, have had an incredible run in July. Should FTSE investors consider buying the precious metal now?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Gold bullion on a chart

Image source: Getty Images.

Earlier in the week, the price of gold hit an all-time high. As I write, the spot price is up around 40% over the past year, hovering at $1,971 per ounce. Our readers may remember that prior to this week’s historic numbers, it had previously hit an all-time record of $1,900 in September 2011.

The performance of FTSE shares is usually negatively correlated to gold, which tends to do well when there is fear in equity markets. Do you also think gold bulls will continue to stay in control in the rest of the year? Then there are several ways you can include the shiny metal in your portfolio.

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Tailwinds behind the price of gold

News headlines regarding a second wave Covid-19 cases, especially in Asia, Latin America, and the US, are hitting the wires worldwide. There is also no question that weakness in the US dollar is offering its own support to the price of gold.

Volatility has once again kicked in broader markets, including many FTSE shares. The past few days have seen the FTSE 100 gyrate between 6,300 and 6,100. Given the health and economic effects of the pandemic, investor sentiment may soon turn bearish again. Then it would not be surprising to see main stock indexes swing lower soon.

Such weakness in equity markets could be good for the price of gold, which is usually regarded as a ‘safe haven’. For hundreds of years, it has been as a store of wealth and a hedge against global uncertainties. 

Market participants have turned bullish on the precious metal in 2020 also due to the cheap money that is available worldwide. Many central banks, including the Bank of England, have cut interest rates further to help ease the pain of economic uncertainty. Economists are nervous as more debt has been issued and more money created than at any other time in history. There tends to be a negative correlation between interest rates and gold.

Portfolio options

A diversified portfolio should ideally be made up of different asset classes. Many analysts recommend holding up to 10% of your investment in gold. Buying the physical asset is one option. In the UK, you can purchase it through the Royal Mint Bullion.

You may also consider investing in exchange-traded funds (ETFs), such as the WisdomTree Physical Gold ETF or the Invesco Physical Gold ETC

Owning some gold exposure through miners may be another way to stay ahead of the curve. I’d consider companies that have strong asset bases, experienced management, and robust balance sheets.

Within the FTSE 100 and FTSE 250, companies that mine gold include Chile’s Antofagasta, Mexico-based Fresnillo, Russian operation Polymetal International, and Centamin, which focuses on the the Arabian-Nubian Shield. 

So far in 2020, the returns for these four companies have been 12%, 86%, 51%, and 66%, respectively.

Investors should note that most gold stocks are low dividend-payers. So they may not be appropriate for passive income investing.

Finally, there are investment funds that invest in various miners. They include the BlackRock Gold and GeneralUBS Solactive Pure Gold Miners ETF, and iShares Gold Producers UCITS ETF.

Foolish takeaway on gold

All asset classes have their advantages and disadvantages. I believe the rally in gold will likely push the price over $2,000 in 2020. However, there may soon be a pause in the recent rally. Any decline toward the $1,800-level could give long-term investors a better entry point. 

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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