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Gold (GC=F) prices have continued to hit fresh highs this week, with an escalation in geopolitical tensions and the US interest rate cutting cycle underway.
The precious metal topped £2,000 per ounce for the first time in the UK on Thursday morning. Paul Atkinson, managing director of Atkinsons Bullion and Coins attributes this to a “combination of soaring gold price in US dollars”, as well as the strength of the pound against the dollar, with the cable rate trading at $1.3381 at midday on Thursday.
Gold is primarily traded in US dollars so falls in the currency can make the precious metal cheaper for buyers.
The gold spot price was trading at an all-time high of nearly $2,677 at midday on Thursday, while gold futures had surged to $2,698. The spot price refers to the current market price of gold, while futures contracts show the agreed price at which the precious metal will be bought and sold in the future.
These latest surges in the gold price come after US consumer confidence data released on Wednesday showed the largest decline in three years, further fuelling market expectations of further interest rate cuts.
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There are also concerns around stubborn inflation in the world’s major economies. The rate of price growth fell to 2.5% in the US in August, though this was still above the central bank target of 2%.
Russ Mould, investment director at AJ Bell, said that another factor impacting gold prices was “notably ongoing nerves around ever-growing sovereign debt mountains in the West and the lack of any debate about this in the USA”.
US national debt has topped the $35tn mark, representing a debt-to-GDP ratio of 120%.
“The deficit-accumulating policies outlined by both candidates in the race to the White House will also play on investors’ minds,” he added.
Mould said gold has been “in demand as tensions in the Middle East escalate”, with Israel’s attacks on Hezbollah in Lebanon.
Gold is considered a safe haven asset against inflation, as well as economic uncertainty and market volatility, due to the fact that it acts as a reliable store of value that can even move higher in turbulent times.
Some analysts believe that the gold price could hit $3,000 next year given this growth in demand.
How to invest in gold
The most obvious way to invest in the precious metal would be by buying physical gold.
However, for most investors “it’s simply not practical to own bars of gold — you would need to transport and store them securely and insure them, all of which would be expensive and tedious”, said Victoria Hasler, Hargeaves Lansdown head of fund research.
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Instead, another option is to buy an exchange-traded commodity, which aims to track the performance of this type of asset, and can be bought and sold in the same way as shares.
One example highlighted by Hasler is the iShares Physical Gold ETC (IGLN.L) which tracks the gold spot price.
“It is backed by physical gold, but takes away the hassle of transporting, storing and insuring the gold and allows investors to buy and sell whenever they want,” she says.
Another way to invest is by buying shares in gold miners.
“There’s often a lag between the price of gold going up and the share prices of gold miners increasing, but over the long term gold miners should do better as gold prices rise,” Hasler said. This is due to the fact that the cost of mining gold doesn’t change but miners can sell it for more.
Top gold fund picks
While investing directly in these companies is one option, Hasler says that for many investors it would be more suitable to do so via a fund which offers diversified exposure to lots of different gold miners.
One such fund is Ninety One Global Gold (0P00009NF8.L), run by George Cheveley. The fund mainly invests in companies involved in gold mining around the world but has some exposure to silver.
“Around 50% of the fund is invested in Canada, which is home to almost half of the world’s publicly listed mining and mineral exploration companies,” said Hasler. “We believe that funds such as this could stand to benefit if the demand for gold, and the gold price, remains high.”
Top holdings include Canadian mining companies Barrick Gold (GOLD) and Agnico Eagle Mines Limited (AEM).
The fund is up 23% over the past year, underperforming its benchmark, the NYSE Arca Gold Miners Total Return index, which has risen 30%. However, the fund has outperformed over the last month, up 3% versus a flat benchmark.
The BlackRock Gold & General (0P0001M07N.L) fund is another “picks and shovels play”, according to Jonathan Moyes, head of investment research at the Wealth Club and manager of its portfolio service.
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The fund is run by Evy Hambro and Tom Holl, who have been managing the strategy since 2009 and 2015 respectively.
“As the fund invests in the earth movers, rather than physical gold, the prices of the companies and spot gold price do not always correlate,” Moyes said. “These miners are un-earthing the physical asset and then selling it on, which means fortunes can fluctuate depending on the price of gold at the time of sale and input costs.”
Barrick Gold and Agnico Eagle Mines Limited are also held in this fund, along with US miner Newmont Corporation (NEM).
“In addition to benefitting from a strong gold price, the fund can benefit from often generous dividends paid by its underlying holdings, providing investors the income physical gold cannot,” Moyes adds.
Year-to-date the fund has produced a return of 23%, slightly ahead of its benchmark the FTSE Gold Mining index, which has risen 22%.
However, Moyes says that investors should note that the strategy has been “far more volatile” than the physical gold price over the longer term.
Moyes highlighted the Jupiter Gold & Silver (0P00017J9E.L) fund, managed by Ned Naylor-Leyland, Chris Mahoney and Joe Lunn, as one for those “investors looking to go a step further and broaden out their precious metal exposure”.
In addition to investing in gold and silver producers, developers and explorers, the fund has some direct exposure to these precious metals through ETCs.
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“This diversified approach ensures investors eggs aren’t just concentrated in a single metal basket,” said Moyes. “The exposure to physical bullion ensures a level of correlation to the precious metal prices whilst having an equity kicker that provides potential additional returns above physical market prices.”
Top holdings include the Sprott Physical Silver (PSLV) and Sprott Physical Gold (PHYS) trusts.
The fund has generated a return of 24% year-to-date, only slightly behind its benchmark, up 25%.
For investors looking for less of an all-out play on gold but still want a fund with some exposure, AJ Bell highlights the Personal Assets Trust (PNL.L).
The investment trust, managed by Sebastian Lyon, “puts a high degree of emphasis on capital preservation”, says Paul Angell, head of investment research at AJ Bell.
“The manager tends to invest in traditional asset classes (equities, government bonds and gold), and is reactive to market opportunities with his weightings to these core asset classes,” he says.
The trust’s top holding, as of the end of August, was a 12% allocation to gold bullion. Its investment team attributed 2% of the fund performance year-to-date to gold, with the share price up 4% so far in 2024.
Over one-year the share price is up nearly 6%, beating a 3% rise in the UK retail price index.
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