The gold price has hit a six-month high amid expectations that interest rate rises are over and may even be cut.
The yellow metal has hit a new six-month high of $2,013 an ounce and it is moving in on an all-time peak level of $2,075.
Gold can be a great way to build diversification and protection into a portfolio.
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MoneyWeek writer Dominic Frisby has pointed out several times in the past, gold has been money “forever” and is likely to retain this title, which makes it a good hedge against periods of economic or political upheaval.
Tom Stevenson, investment director, personal investing at Fidelity International, says gold would normally be expected to underperform in an environment of high interest rates because it does not pay investors an income.
That makes it relatively unattractive when a decent yield is available from other lower risk assets like bonds and cash.
But there are different fundamentals driving demand.
“The expectation that interest rates are poised to fall back again in 2024 is reducing the opportunity cost of holding gold.,” says Stevenson.
“At the same time, a weakening dollar is reducing its cost to buyers in other currencies. Finally, gold is benefiting from its safe haven reputation at a time of heightened geo-political uncertainty.”
There are benefits and drawbacks to all of these approaches.
Owning physical gold can come with significant costs such as storage fees and insurance.
Using an ETF (exchange-traded fund) can cut these costs and make it easier to buy and sell – and you won’t have to store it yourself – but it won’t eliminate the drawbacks entirely.
There are usually management fees to pay and because gold doesn’t generate any cash flow, there’s no chance of a dividend.
Picking mining stocks has its own set of challenges. These companies quite literally mint money, but they’ve struggled to turn that money into shareholder value. The challenge is, mining can be unpredictable.
Still, miners, especially the big established players, tend to offer a dividend. That’s favourable to the charges that come with owning physical gold.
One favourite method for getting exposure to gold is to use funds, specifically, investment trusts.
Funds that specialise in gold and gold miners
The BlackRock World Mining Trust’s objective is to provide a “diversified investment in mining and metal assets worldwide”.
It offers exposure not only to gold miners but also to other key resources such as copper and iron ore.
Considering the role copper plays in the global economy, it makes a lot of sense for investors to have some exposure to this metal as well as gold. However, it’s not as sought after as gold as a store of value (gold is a byproduct of copper mining).
As well as equity investments, the trust is also able to buy other assets to build exposure to the mining sector. Josef Licsauer, investment analyst at Hargreaves Lansdown notes, “a smaller portion of the trust is dedicated to bonds, debentures (a type of bond or debt instrument) and certain royalties”.
The World Mining Trust is managed by Evy Hambro, who has 25 years of experience investing in the mining industry. And with the World Mining Trust, Hambro has the flexibility to invest where he believes the best returns can be found.
“The managers attempt to identify the biggest trends or themes in the industry to help work out areas of opportunity in the market. Some of the more recent trends, electric vehicles and transition to clean energy for example, saw the managers increase their investments in certain precious metals,” Licsauer says.
Hambro also manages BlackRock Gold & General. This fund aims to “grow investors’ money over the long term by investing primarily in gold mining companies from across the globe,” as Licsauer explains.
“Hambro is confident in his long-term outlook for the gold price, expecting rising incomes in emerging markets to fuel demand for gold products, such as jewellery, while the absence of large gold discoveries could constrain supply and lead to a rising gold price,” the analyst adds.
Ruffer Investment Company also offers a specialist gold fund, LF Ruffer Gold Fund. Like Gold & General, it concentrates on gold mining stocks. With an ongoing charge of 1.5%, it’s a bit pricey although its accumulation shares have returned 94.1% over the past five years – so perhaps you get what you pay for.
Lastly, two smaller unique funds are Jupiter Gold & Silver and Golden Prospect Precious Metals Limited. Both focus on gold equities, but have a mixed record.
All of these funds offer exposure to gold and gold miners. Some are more diversified with a better record than others.
How to buy physical gold
If, unlike me, you’d rather invest in physical gold, then ETFs are a great way to own the metal without having to worry about carting around huge lumps of gold.
The iShares Physical Gold ETC tracks the gold spot price and is one of the cheapest products on the market for tracking the gold price.
As Licsauer explains, “This ETC only accepts gold that meets the London Bullion Market Association (LBMA) Good Delivery rules and the LBMA’s Responsible Sourcing Programme, making sure that 100% of the gold bullion backing the ETC is responsibly sourced. With an ongoing charge of 0.12%, it’s also competitively priced in the market versus its competitors. Exposure to the metal is an attractive option for those who want to diversify their portfolios or who believe that the price of gold will rise in the future.”
Rupert is the Deputy Digital Editor of MoneyWeek. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert was a freelance financial journalist for 10 years before moving to MoneyWeek, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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