Gold recently hit a high for 2020. The spot price is up over 13% year-to-date, hovering at $1,765 per ounce. In late June it went over $1,775 to see its highest level in almost a decade. Our readers may remember that it had 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. As we start the second half of the year, do you also think there is a case to be made for gold? Then there are several ways you can include the shiny metal in your portfolio.
Catalysts 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. Volatility has once again kicked in broader markets, including many FTSE shares. The past week has seen the FTSE 100 gyrate between 6,335 and 6,050. Given the health and economic effects of the pandemic, investor sentiment may soon turn bearish again. Then it’d 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 anstore of wealth and a hedge against economic or political 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.
How to include gold in your portfolio
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 the shiny metal 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 through miners may be another way to stay ahead of the curve. Which gold-mining shares would I consider backing? I’d start my research with 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 -1%, 31%, 33%, and 40%, 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 General, UBS Solactive Pure Gold Miners ETF, and iShares Gold Producers UCITS ETF.
All asset classes have their advantages and disadvantages. I believe the rally in gold will likely push the price over $1,800 in 2020. However, as always, research your investments carefully and invest in companies your really believe have a long-term future.
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.