The gold price has been on a charge lately, and last week was no exception. The price went through $1,800 per oz, reaching levels not seen since 2011. For investors like myself, this is a trend that merits attention. But unless I go out and physically buy a gold bar, I need to be creative in how I play this.
FTSE 100 stocks offer an indirect way of getting exposure to the commodity. As always, I’ll be adding any of these stocks into my Stocks and Shares ISA. This way, my allocation of £20,000 for the year can be invested without the worry of having to pay capital gains tax on any profits made when I sell.
Why is gold rallying?
Before we look into how to get exposure to gold, let’s understand why we want to in the first place. Gold has returned almost 30% over the last 12 months, making it one of the best performing financial assets. After the stock market crash in March, the majority of blue-chip stocks are in negative territory. While some investment grade bonds have registered a positive return, this is mostly in single-digits.
The main reason gold has outshone (pun intended) other assets is the allure of the safe-haven properties it possesses. It has a tangible store of value that’s tough to erode. As a side note, this is why investing in Bitcoin can be problematic (what’s the value?). Given the uncertainty we’ve seen on a global level over the past six months or so, investors have wanted a safe place for their money. Gold has obliged, hence the price shooting up so rapidly.
How can I buy in via FTSE 100 stocks?
If you don’t want to invest in a gold ETF or physical gold directly, you can go indirect via a FTSE 100 stock. One good example is Polymetal International (LSE: POLY). The firm is a precious metal miner operating out of Russia. It doesn’t just mine for gold, but the precious metal is one of its largest focuses.
The thinking behind investing in a firm like Polymetal is that if the gold price rallies, so should the Polymetal share price. This is because when mining for gold, the secondary market price achieved is a key element to the profitability of the firm. If gold trades higher than it did last year, naturally revenue should be higher. In the first-quarter results, quarterly revenue for Polymetal increased by 9%. It said this was “off the back of higher gold prices“. How has the share price performed over the second quarter following this? It’s up 16%.
This highlights that although this isn’t a direct correlation to gold, it does offer an easy way to get exposure. It also helps investors not get too exposed to gold. Given the firm also mines for other precious metals, it should be slightly insulated from a collapse in the gold price. If you just bought gold directly, there’s none of this benefit.
So through buying gold-related FTSE 100 stocks now, you can shield it in your ISA. Then you have a smart (and slightly protected) way of riding this gold move higher!
Jonathan Smith and The Motley Fool UK have 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.