The price of the world’s most popular precious metal has reached record highs, and investors want to buy gold.
News of the all-time record hit news headlines across the world, from the BBC to the New York Times. Today the gold price against the pound stands at an incredible £1,500 per ounce.
The yellow metal has risen 28% since the stock market crash in March. It has been driven by historic tension over the future of world economies. But there doesn’t always seem to be an easy way for investors to buy gold. Some investors might consider a rocketing junior gold miner like Greatland Gold, for example. But AIM-listed resources firms can be risky.
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The idea of hedging your portfolio against severe economic distress is simple enough.
“People definitely use gold as a form of apocalypse insurance”, Daniel Strauss, head of ETF research at Canada’s National Bank Financial, told the Globe and Mail in April.
But do you buy gold in a bar, like Fort Knox? In commemorative coins stashed in the loft? There must be an easier way.
Gold as insurance
In normal times the UK’s most popular exchange-traded funds (ETFs) extend to funds that track the FTSE 100 or FTSE 250.
But with a global downturn on the immediate horizon, gold ETFs are rocketing in popularity.
While they’re technically known as ‘ETCs’, or exchange-traded commodities, most people still tend to refer to them as ETFs. So for the purposes of this article I’ll continue with that nomenclature.
You can buy gold ETFs in a Stocks and Shares ISA or SIPP, as simply as you would any other share or fund. Choose the amount you want, then click to buy. They are listed in London, just like most of the stocks you’d normally buy.
The $8.2bn Wisdom Tree Physical Gold ETF (LSE:PHAU) is one of the most popular. According to its datasheet, it is “designed to offer security holders a simple and cost-efficient way to access the gold market”. If the price of gold rises while you hold a slice of the ETF, your investment is worth more than you paid for it.
PHAU is backed by physically-held gold kept in HSBC’s bank vaults.
You will pay a 0.19% annual management fee, and a 0.39% yearly charge for holding PHAU, but aside from that, your gains are your own.
Is now the right time to buy gold?
As a value investor I tend to focus on buying bargain, undervalued equities. You definitely couldn’t say that about gold. But as a flight to safety, there is no better option.
And commodity analysts think prices will continue to rise as global growth slows and recessions kick in.
Earlier this year, Daniel Hynes, commodity strategist for the Australia and New Zealand Banking Group raised his price target to $1,900 per ounce by December 2020. The gold price has already surpassed that lofty target.
“The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate. We think those investors who continue to raise their allocation to precious metals are sitting on a gold mine“, Hynes said.
And an April 2020 Bank of America report, entitled The Fed Can’t Print Gold, said prices could reach $3,000 by the end of 2021.
There could hardly be a better time to buy gold, in my opinion.
