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How to Invest in Gold

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Publication Type: Investment Cases , Investments
How to Invest in Gold

In this blog, we look at gold and how investors can access it through Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs) to include in their investment portfolios.  The reason why gold holds appeal for investors is that is a store of value that can provide protection both against inflation and also as a diversifier in a portfolio made up of equities and bonds.  In an environment when inflation has been at historically low levels, it is generally for this latter reason that investors will look to include gold in a portfolio. 

Put simply, investors expect gold to do relatively well when financial markets become stressed.  Growing investor uncertainty, sometimes reflected in a rise in the VIX index of volatility, is often the time when you will see growing investor interest in gold.  There is no typical allocation to gold in a portfolio.  It will depend on investor preferences, but allocations probably typically fall in the range of 3-10%. 

Way to invest in gold

In this section, we will look at the different types of exposure that investors can take to gold, focusing on products that are listed on London Stock Exchange.  In the first category, we look at exposure to the gold through physically-backed products, those are products that are backed by London Bullion Market Association (LBMA) Good Delivery bars that weight approximately 400 troy ounces.  For more on Good Delivery, please visit the LBMA website

Physically-backed gold ETCs

These products have proved particularly popular because of their metal backing and have been used by different types of investor from pension funds through to individual investors.  They track the spot price of gold less the product management fee.  For investors who want to remove the US dollar exposure, it is possible to take currency-hedged exposure. 

Product name ISIN Ticker

Amundi Physical Gold ETC

FR0013416716

GLDA

Gold Bullion Securities

GB00B00FHZ82

GBS

HANetf The Royal Mint Physical Gold ETC Securities

XS2115336336

RMAU

Invesco Physical Gold A

IE00B579F325

SGLD

iShares Physical Gold ETC

IE00B4ND3602

IGLN

WisdomTree Physical Gold

JE00B1VS3770

PHAU

WisdomTree Physical Swiss Gold

JE00B588CD74

SGBS

Xtrackers Physical Gold ETC

GB00B5840F36

XGLD

Physical Gold (GBP Hedged)

   

Invesco Physical Gold GBP Hedged ETC

XS2183935605

SGLS

WisdomTree Physical Gold - GBP Daily Hedged

JE00B7VG2M16

GBSP

Xtrackers Physical Gold GBP Hedged ETC

GB00B68FL050

XGLS

 

Index-tracking gold ETC

In this category, the ETC tracks a Bloomberg Gold Subindex, which is priced off gold futures, with exposure being rolled between a pre-determined future at a set interval as set out in the index methodology.  This ETC will appeal to more sophisticated investors, particularly those who believe that there may be scope for outperformance through exposure to the underlying gold futures relative to those generated from exposure to the spot price.  This ETC obtains its performance through a collateralised swap.

Product name ISIN Ticker

WisdomTree Gold

GB00B15KXX56

BULL

 

Short and leveraged gold ETCs

These exposures are for sophisticated investors who want to express high conviction, directional views on gold or to use the ETC to hedge risk.  These ETPs obtain their performance through a collateralised swap.

Product name ISIN Ticker

WisdomTree Gold 3x Daily Leveraged

IE00B8HGT870

3GOL

WisdomTree Gold 2x Daily Leveraged

JE00B2NFTL95

LBUL

WisdomTree Gold 3x Daily Short

IE00B6X4BP29

3GOS

WisdomTree Gold 1x Daily Short

JE00B24DKC09

SBUL

 

Gold mining UCITS ETFs

Another way that investors can take exposure to gold is to invest in ETFs that provide exposure to gold miners, which can sometimes be highly geared to the gold price, meaning that their prices can rise faster than the gold price.  While this may be the case, investors need to consider that by buying an equity ETF they are taking on broad equity market and stock-specific risks, which may lead to adverse performance and something that would not occur with direct exposure to the metal itself.

Product name ISIN Ticker

VanEck Vectors Junior Gold Miners UCITS

IE00BQQP9G91

GDXJ

VanEck Vectors Gold Miners UCITS ETF

IE00BQQP9F84

GDX

Market Access NYSE Arca Gold Bugs UCITS ETF

LU0259322260

GOLB

L&G Gold Mining UCITS ETF

IE00B3CNHG25

AUCO

iShares Gold Producers UCITS ETF

IE00B6R52036

SPGP

 

Ten fun facts about gold

  1. 187,200 tonnes – Around 187,200 tonnes of gold have been mined since the beginning of civilisation.
  2. 2316 troy ounces – The largest ever true gold nugget weighed 2316 troy ounces when found at Moliagul in Australia in 1869. It was called the “Welcome Stranger”.
  1. 49ers – The 40,000 miners who joined the California Gold Rush in 1849 were called “49ers”. Only a very small number of them ever got rich.
  1. 90% – Over 90 per cent of the world’s gold has been mined since the California Gold Rush.
  1. 21 metres cubed – All of the gold ever mined would fit into a crate of 21 metres cubed.
  1. 2 million – If all of the existing gold in the world was pulled into a 5 micron thick wire, it could wrap around the world 11.2 million times.
  1. One ounce of gold can be beaten into a translucent sheet 0.000018 cm thick and covering 9 square metres; or pulled into a wire 80 km (50 miles) long
  1. 1oz – It is rarer to find a one ounce nugget of gold than a five carat diamond.
  1. 103 grams – There are just over 31 grams in a troy ounce of gold.
  1. 49% – Around half of all gold mined today is made into jewellery, which remains the single largest use for gold.

Source:  World Gold Council, https://www.gold.org/about-gold/gold-facts

Gold

Final thoughts

Gold has been a store of value and much sought after since ancient times, and, based on continuing demand for jewellery, it is probably safe to say that it won’t be going out of fashion any time soon.  As an investment, the first physically-backed gold ETC was listed on London Stock Exchange in 2004 to meet the need of investors who want exposure to the metal as a diversifier.   In October 2020, there are over 10 physically-backed gold ETCs listed in London reflecting the breadth of investor interest in taking exposure to the yellow metal either as a ‘safe haven’ asset or simply because they have a positive view on the outlook for gold prices.

As with any investment, it is important to recognise that the price of gold will move up and down, and there will be periods when gold is out of favour.  Gold remains very much a bellwether of sentiment about the state of the global economy and its price will be driven by factors such as the strength of the US dollar, interest rates and their outlook, as well as the levels of jewellery demand and buying by central banks.  The global Covid-19 pandemic and associated economic crisis have made 2020 one of those years when gold has been very much in demand by investors.

If you are you a sophisticated investor looking for alternative investment solutions, then GraniteShares short and leveraged single stock ETPs on UK blue chips and US tech stocks could be exactly what you’ve been looking for!


GraniteShares accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this blog or the contents. GraniteShares Limited (“GraniteShares”) (FRN: 798443) is an appointed representative of Duff & Phelps Securities Ltd. (FRN: 466588) which is authorised and regulated by the Financial Conduct Authority.

 

This blog does not constitute an offer to buy or sell or a solicitation of an offer to buy securities in any company. Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. No recommendation is made positive or otherwise, regarding individual securities or investments mentioned herein. Any summary list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in a particular investment. Prospective clients must consult with their own legal, tax and financial advisers before deciding to invest. This email contains the opinions of the author and such opinions are subject to change without notice. The source of data is GraniteShares unless otherwise stated. No guarantee is made to the accuracy of the information provided which has been obtained from sources believed to be reliable. This email and the information contained herein is intended only for the use of persons (or entities they represent) to whom it has been provided. Past performance is not a reliable indicator of future results.  The value of an investment may go down as well as up and can result in losses, up to and including a total loss of the amount initially invested. Investments may involve numerous risks including, among others, company risks, general market risks, credit risks, foreign exchange risks, interest rate risks, geopolitical risks and liquidity risks.  Please note that GraniteShares short and leveraged Exchange Traded Products are for sophisticated investors.

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