Three ways to invest in gold: A new investor’s guide to the yellow metal
In dollar terms, gold has returned 14 per cent in 2024 already this year, eclipsing the 13 per cent delivered across the entirety of 2023.
And considering the number of factors currently supporting the price run, including China’s stockpiling hot streak, war in the Middle East and Europe and delays on interest rate cuts, today’s US inflation report may not do much to dissuade the gold bulls.
So, how can investors cash in on the gold rush?
Physical gold
Who doesn’t like the idea of a shiny stack of bullion or a chest of coins? Even though it’s the most aesthetically appealing way to invest in the yellow metal, it also presents challenges.
Everything about individuals acquiring the physical metal is a potential headache.
It can be purchased from government mints and precious metal dealers, but scam artists are rife among independent traders.
There are no stamp or VAT duties on physical gold purchases, but insuring delivery, storage, and sufficient insurance may be too much hassle for many.
Invest in gold miners
The irony of gold’s success is the companies that pull it out of the ground haven’t felt the benefits.
Yellow metal producers are volatile investments at best owing to the industry’s cyclical boom-bust nature, but two of the world’s largest miners are currently languishing in an extended slump.
Newmont is the largest gold miner in the world, producing almost twice as much as second-place Barrick.
But despite its key product’s successes, Newmont’s stock is hovering around a five-year low and over 63 per cent down from the highs seen during the pandemic into 2022.
The firm paid $16.8bn (£13.2bn) for competitor Newcrest late last year to boost growth. It then cut jobs and spun off assets to pay for the deal, but some analysts have said they believe these sales have lowered the company’s value.
Barrick, too, has been suffering and has underperformed the price of gold bullion on a 10, five and three-year basis, even when accounting for dividends.
Barrick reported a total revenue of $11.39bn (£8.9bn) for fiscal 2023, up marginally from 2022, while its revenue stood at over $12.59bn (£9.9bn) in 2020. The higher price of the yellow metal has not translated into higher revenue or profit for the producer.
Both Newmont and Barrick ‘should’ see improvements, but the cost of exploration and extraction is rising constantly, and that will prove a tough cost curve to balance out and convince investors to come on board.
There are many medium-small cap plays available on London’s AIM market, but buyers beware. Many an investor has been left empty-handed when a company promising gold discovery quickly falls flat.
Gold ETFs
Meanwhile, exchange-traded funds (ETFs) aim to track the price of gold, with many buying and storing the physical metal.
Some choose to use derivatives or options to try and get maximum exposure at the optimal time, but these are more risky and tend to carry higher fees than those backing physical gold.
The EU does not allow ETFs that track a single commodity, so funds that do this are called “exchange-traded commodities” (ETCs) instead.
The only important difference between the two is ETFs supported by physical gold are, therefore, ETCs.
Which ETFs should I back?
Wisdom Tree Physical Gold is a Sterling-based ETC backed by physical metal held by HSBC Bank. It has an ongoing charge of 0.39 per cent.
iShares Physical Gold holds physical gold kept by JP Morgan Chase in London, with an ongoing charge of 0.12 per cent.
The HANetf Royal Mint Responsibly Sourced Physical Gold only owns 100% post-2019 LBMA-approved bars. It charges just 0.25% per annum.
The WisdomTree Physical Swiss Gold ETC stores its gold in secure vaults in Zurich on behalf of JPMorgan Chase Bank. The ongoing charge is 0.15%.
Xtrackers Physical Gold is a small ETC with £27m in assets under management and based in Jersey. The ETC carries an ongoing charge of 0.71 per cent.