The gold price boom is one of 2024’s investment stories so far. The yellow metal has hit another record peak approaching $2,800 per ounce in recent days. It’s up 35% in the year to date.
Such a rise for any share, commodity, or financial asset can lead to a sharp correction. It can lead to fears of overvaluation, and a possible surge in sellers seeking to book profits.
But in the case of gold, I think there’s a good chance prices will continue ascending. This is thanks to multiple important drivers like rising inflation expectations as central banks cut interest rates, intensifying conflict in the Middle East, and concerns over the economic and political situation in the US.
So I think investing in a gold-backed asset is worth serious consideration today. One of my favourites right now is the iShares Gold Producers ETF (LSE:SPGP).
A top ETF
This exchange-traded fund (ETF) gives investors indirect exposure to the rising gold price. In total, it holds shares in 61 different miners, the majority of which (65.4%) are industry giants with market capitalisations of $10bn or more.
Such a composition helps to give me peace of mind. Spreading my money across several dozen companies means less risk than investing in one or two specific miners. This is important to me given the high chance of operational problems that can smack revenues and push costs through the roof.
I also like the idea of owning shares in industry giants like Barrick Gold, Newmont, Wheaton Precious Metals, and Agnico Eagle. These miners have long track records of operational excellence, which — if they continue — could provide me with a better return than simply buying an ETF that tracks the gold price.
Be aware, however, that such outperformance is by no means guaranteed.
The fund has provided a healthy average annual return of 7.6% over the past decade. However, that’s slightly lower than the 7.8% corresponding return that the bullion-tracking iShares Physical Gold fund has delivered in that time.
Dividend reinvestment
A miner-focused ETF has another big advantage over a simple gold-tracking fund: dividends.
While dividends are never guaranteed, the iShares Gold Producers ETF contains many companies that have paid and continue to pay a regular dividend on their shares.
These cash rewards are reinvested in order to grow the value of the fund over time.
Because gold itself doesn’t generate dividends or interest, an ETF that simply tracks bullion prices lacks this potential for growth from dividend reinvestment.
Cost efficient
As with any ETF, investors pay an ongoing charge to hold this iShares product. This currently sits at 0.55%.
Fees like this obviously take a bite out of return. However, investors would potentially pay a lot more in trading fees and other costs (like stamp duty) by buying multiple individual gold shares for their portfolios.
What’s more, I still believe the fund could deliver healthy returns given the robust outlook for gold prices. Precious metal prices can go down as well as up, of course. But I think this fund’s worth a close look right now.
