News that the gold price has hit record-breaking highs north of $1,660 per ounce may be concerning to long-term investors.
High gold prices are usually a sign that all is not well in stock markets. In fact, assets like gold and Bitcoin that don’t produce dividends tend to be most highly-prized when the market believes that there is severe weakness ahead.
Coronavirus is inflicting a heavy toll on Chinese growth and fear is building that the tragic outbreak could have a long-term negative ripple effect on global markets. In recent weeks, Apple has warned its profits will be hurt and it is becoming clear that businesses with supply chains dependent on East Asia will be hit hard.
Going for gold
When looking at the main ways of investing in gold, there are some obvious pitfalls that can catch out newbies and the less well-informed.
Buying bars of physical gold is exceedingly expensive, they are tricky to store and hard to sell on.
Putting your hard-earned cash into an AIM-listed junior gold mining company — which may never be profitable and takes part in a mining process fraught with high costs and long-term difficulty — is also a high-risk investing play.
Instead, I would invest in the easiest option available: a gold ETC (exchange-traded commodity). These kinds of funds work in a similar way to ETFs, or exchange traded funds.
The main difference is that instead of tracking the price of an entire stock market index, like the FTSE 100, FTSE 250 or S&P 500, they track the price of a commodity: like gold, silver, oil or natural gas.
Buying a slice of an ETC offers four specific benefits. Firstly, it is simple to buy. Secondly, it is relatively low-cost. Thirdly, it allows you to hedge against future fragility in equity markets, and fourthly, UK investors can buy a slice of this product in a tax-efficient Stocks and Shares ISA or SIPP.
Unlike when you buy stocks and shares in your ISA, there’s usually no dealing charge to pick up an ETC.
WisdomTree Physical Gold (PHGP)
WisdomTree Physical Gold (LSE:PHGP) has shot up to become the second-most traded ETC on the platform of one of the UK’s biggest brokers, Hargreaves Lansdown.
It was worth $7.1bn at last count. It won’t be cheap to buy a slice of this ETC, but buying the biggest fund comes with some clear benefits.
It sounds simple, but the larger the fund, the more popular it is. This means there is more liquidity — that is, more people buying and selling it every day. It is more likely you will be able to buy in and sell out quickly at the price you want.
You’ll pay a 0.39% management charge per year, which for Hargreaves Lansdown is capped at a maximum £45 cost over 12 months. This may be different for other popular ISA platforms like AJ Bell or Interactive Investor, so it’s worth checking out, but should not be too expensive.
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Tom Rodgers 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.