Bar the odd exception, the value of gold has a habit of rising over periods when markets are tanking. As such, the precious metal’s long been regarded as a safe haven for investors in times of trouble. Based on its performance over the last few weeks, it would appear many believe we’re now about to enter such a downturn.
This being the case, what options are available to investors looking to gain gold exposure, if only for the short term?
1. Track the gold price
Perhaps the simplest way of profiting from gold’s growing popularity is to buy an exchange-traded commodity fund that tracks its spot price. One of the best-known examples of this kind of fund (which is passively managed and subsequently charges very low annual fees) is offered by iShares.
Unsurprisingly considering ongoing concerns over slowing global growth, the US/China trade spat and the never-ending saga that’s Brexit, its Physical Gold fund has had a great 2019 so far, rising 18% in value.
The only drawback to holding something like this is it doesn’t generate any income. Gold is, after all, regarded as a store of value, not something that produces any cash flow in itself. If dividends are what you’re looking for, there are some other options.
2. Buy a gold miner
An alternative to buying a fund that merely tracks the spot price would be to buy shares in a gold miner or two. Examples of such firms listed on the London Stock Exchange are Fresnillo and Centamin. They yield 1.6% and 3.2%, respectively.
Of course, buying shares in individual companies carries considerable risks but particularly so when it comes to those in this often-volatile sector. For less risk-tolerant investors, pumping some money into an exchange-traded fund that tracks a bunch of gold producers (such as giants Barrick Gold and Newcrest Mining) might be more appealing.
Again, the iShares Gold Producers ETF is one of the most popular examples of such a fund. It’s up 39% in the year to date and has an ongoing charge of 0.55% — fairly reasonable considering the diversification it offers.
3. Buy a pawnbroker
A final option for investors would be to buy shares in a company that benefits from the rise in the price of gold but doesn’t carry the inherent risks that come with mining for it. Within this category, I’d include pawnbrokers H&T and Ramsdens, both of whom purchase gold from customers and then sell on the non-retail pieces to bullion dealers.
Last week’s half-year results from the former were decent enough with a 7.9% rise in pre-tax profit to £6.8m, and a further reduction in net debt. Ramsden’s most recent set of results weren’t bad either.
Another reason for buying stock in H&T and/or Ramsdens are the dividends on offer. At their current prices, the shares have forecast yields of 3.3% and 3.9%, respectively. So, not only will counter-cyclical stocks like these benefit from a rise in the gold price, they should also be able to pay holders a steady income during economic downturns.
The above, when combined with the fact that shares in Ramsdens and H&T are still very reasonably priced — trading as they do on 10 and 11 times forecast earnings — makes me think either could be a great buy for investors wishing to protect their portfolios from a likely recession.
