Gold’s appeal in times of stress
Jackie Qiao, Head of Fund Research at Elston Consulting, discusses the value of holding gold in times of market stress .
Gold historically has been the ultimate store of value through periods of market stress – a knee-jerk insulator. The precious metal has the potential to protect against inflation, provide portfolio insurance, and deliver risk-based diversification. Unlike some other Alternative assets, gold is highly liquid (in terms of average daily trading volume), making it readily investable.
For sterling investors holding (unhedged) Gold exposure in their portfolios has preserved value relative to a declining fiat currency, as well as providing a source of “true diversification” owing to its uncorrelated relationship with both equities and bonds.
Some asset allocators despise gold as it provides no income and no intrinsic growth. Other “gold bugs” believe that gold is the be-all and end-all of investing. A measured approach would be to recognise its historical properties as a store of value through inflationary times and also to harness its diversification potential owing to its uncorrelated behaviour.
How to get exposure?
If you want to own a bit of history, you can go to a bullion dealer and buy a gold coin (like a Gold Sovereign). Sovereigns are CGT-free as they are still legal tender. The problem is 1) you can only buy them in ~£300 increments, 2) the premium/discount to its gold value is typically quite-wide; and 3) they are easily lost! For more liquid and convenient access, there are a number of Exchange Traded Commodities (ETCs) that provide access to gold in different ways.
- Physical Gold: for targeted exposure to the gold spot price, investors can buy ETCs that directly (or “physically”) own gold bullion. WisdomTree Core Physical Gold (LON:GLDW) provides access for 0.12% TER.
- Gold hedged into sterling: If you like physical Gold and also tactically believe Sterling could recover from its lows, you could look at Sterling-hedged version. WisdomTree Physical Gold - GBP Daily Hedged (LON:GBSP) provides that exposure for 0.25% TER, which is simpler than running a separate currency overlay. Part of Gold’s appeal in our view is as a diversifier away from currency, not towards it.
- Gold miners: rather than direct exposure to gold, investors can also look to own gold miners and producers, capturing a similar performance profile, but introducing financial and operating leverage. This can amplify short-run returns on the upside or downside. iShares Gold Producers UCITS ETF (LON:SPGP) for 0.55% TER holds a diverse selection of companies related to businesses engaged in exploration and production of gold.
For investors wanting to access the yellow metal as part of their portfolio, there are a broad range of instruments to do so in a liquid, cost-effective manner.
All ETFs mentioned are London-listed ETFs and available on the IG share dealing platform.
Your capital is at risk. The value of shares, ETFs and ETCs can fall as well as rise, which could mean getting back less than you originally put in.
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