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Why I’d buy UK shares in an ISA instead of gold to get rich during the economic downturn

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There’s a number of ways that investors can protect themselves from the worsening Covid-19 crisis. Buying UK shares of companies that produce gold remains a good idea as the threats to the global economic recovery rise. But this isn’t the only reason, as ongoing central bank money printing bolsters inflationary concerns as well.

Much has been made of gold’s sharp fall below August’s record highs around $2,070 per ounce. But this negative price action results from recent US dollar strength and strong profit booking.

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Indeed, safe-haven demand remains rock solid, as World Gold Council (WGC) data has recently shown. The body says that gold-backed exchange-traded funds (ETFs) enjoyed net inflows of 20.3 tonnes in October. This marks the 11th straight month of net inflows, the WGC says, and matches the record set back in spring 2006.

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Riding the gold train

Gold as an asset class has its knockers. Many people doubt it has any intrinsic value and that it only rises when investors are scared. Regardless, as 2020’s rocketing price shows, it’s still possible for investors to make a fortune from the yellow metal. And the factors that have sent it spiralling to record levels in recent months could remain in play for years to come.

I personally expect gold to soar from its recent levels around $1,900 per ounce. And escalating Covid-19 numbers isn’t the only reason why demand for precious metals could soar again. Fears over a new sovereign debt crisis, growing civil unrest in the US, the threat of a no-deal Brexit, and the possibility of fresh US dollar weakness, could also fuel gold prices.

A great way for investors to ride this train is by buying stock in one of London’s quoted gold producers. There are many UK shares to choose from on this front too. And some of them are a better choice than investing in the metal directly — or in a gold-related financial product like an ETF — as they offer the chance for investors to receive dividends. The lack of dividends is another reason why many people don’t like the idea of investing in gold.

5 great UK shares

And there are some truly exceptional dividends for UK share investors to grab a slice of. Take FTSE 100 giant Polymetal International, for example. This Russia- and Kazakhstan-focussed digger carries a forward dividend yield of 6.3%. Trans-Siberian Gold meanwhile sports a mighty yield of 9% for 2020. And Centamin yields a mighty 8%.

Other lower-yielders also offer plenty for investors to get stuck into. Caledonia Mining Corporation for instance yields a tasty 2.1% while Pan African Resources carries a forward yield of 1.8%. And what’s more, these gold producers — like the ones mention above — look dirt-cheap from an earnings perspective.

Each trades on a forward price-to-earnings (P/E) ratio below the widely-accepted bargain benchmark of 10 times and below. I’d happily buy any of these UK shares in an ISA to get rich during the economic downturn.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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