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How I’d invest in precious metals as the gold price may continue to increase

In August, gold hit a 52-week high and year-to-date, the gold spot price is up over 16% and hovering around $1,520 per ounce. There are varying reasons behind this recent rally, ranging from the worries about the US-China tariff war, volatility in the oil market, talk of a global recession, macroeconomic fears, uncertainty in Europe partly because of the developments on the Brexit front, and rather volatile and feeble 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 Federal Reserve Board (Fed) to introduce negative rates. If US dollar deposits see negative rates, smart money is likely to move not into other currencies, but possibly into commodities, including precious metals such as gold.

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Gold is proving to be one of the best investment instruments in 2019. So if you believe that the next bull cycle in gold is under way and would like to invest in it, then you can buy into gold in several ways.

Physical gold

In 2018, 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.

Over the centuries, people have always invested in gold through buying the physical metal and the average person knows that the metal’s prices tend to shoot up in turbulent times.

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. With an ongoing charge of 0.39%, the fund may be suitable for investors looking for the kind of safe haven that would be offered by gold itself, especially in the short term.

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. Many gold miners have been seeing their share prices pop as global gold prices surged higher in recent months.

However, I’d like to remind our readers that gold miners can rise by a greater amount than an increasing spot gold price. Similarly, shares of these companies tend to underperform by a large percentage when the price of gold falls. Furthermore, there may be geopolitical risks regarding the country where the mine is located. In other words, their share prices tend to be rather choppy.

Are there any miners I think are worth backing? After doing due diligence, you might consider FTSE 250 gold mining company, Centamin, which is focused on the Arabian-Nubian Shield.

This mid-cap stock with a market capitalisation of £1.65bn has a robust balance sheet with no debt. With a current dividend yield of almost 3%, CEY has a good history of returning a large share of free cash flow to investors semi-annually. The shares went ex-dividend as of 29 August.

Then there are investment funds that invest in gold miners. Examples of such funds would be the BlackRock Gold and General, or UBS Solactive Pure Gold Miners ETF, or iShares Gold Producers UCITS ETF.

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tezcang 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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