Gold shines during times of crisis – so how can you get in on it?

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September 12, 2019 04:59:40

Good news is bad news when it comes to gold and geopolitical tensions roiling

Key Points:

  • The World Gold Council calls for a three-year high hit in the first six months of 2019
  • Holdings of gold exchange traded funds reached 2,548 tonnes in the second quarter
  • Investors can hold physical gold by purchasing actual bars and coins or as part of a 'pool', with a number of account holders

"For thousands of years, the Perth Mint's chief executive Richard Hayes said.

In recent months, demand has risen, with central banks buying up gold and money flowing into gold-backed exchange traded funds.

Why is gold in demand?

From treasure chests to the bottom of the ocean to jewelery traded at a pawn shop, gold has been a symbol of enduring riches and convertible wealth.

"You can go back through history, it's been used as money, it's a tool to base currency off," said InvestSMART chief market strategist Evan Lucas.

"Nowadays, it's basically seen as a way of storing the value of your money against volatility in markets or slowdown in the economy."

In June, as the Perth Mint celebrated its 120th anniversary and the G20 meeting loomed, the Australian dollar gold price broke above $ 2,000 an ounce for the first time.

"Its price in Australian dollars is a factor of both the underlying US dollar price and current weakness in the Australian dollar," Mr Hayes said.

There has been no shortage of global uncertainty driving the price of this year – from the ongoing US-China trade war, slowing global growth and recession fears, tensions between the US and Iran, the Hong Kong protests and the ongoing Brexit saga.

Another reason investors have flocked to this year.

"When interest rates go down and central banks continue to pump that liquidity into the system, that means money losses its value. When that happens you've got to hold assets, real hard assets," said Tribeca Investment Partners portfolio manager Jun Good He.

As a bond yields fall to multi-year lows, gold has become more attractive.

Said Nicholas Frappell from gold dealer ABC Bullion.

"Evan Lucas said." Gold is more likely to hold its value but in times of volatility, in times of risk, we have seen it move up.

However, what goes up can also go down. While the price hit an all-time high above $ US1,800 in the US debt-ceiling crisis of 2011, it fell below $ US1,100 in 2015.

This year, central banks have been among the big gold buyers, including Poland, Russia, China and Turkey.

In the first six months of this year, more than 374 tons of gold was bought by central banks – up 57 per cent

How can you invest in gold?

Many Australians hold gold as part of a diversified portfolio in their superannuation fund.

"Under a lot of super fund mandates – what they have to invest in certain percentages or sizes – gold would probably be part of that," Mr. Lucas said, noting that exposures to gold vary depending on how conservative a fund is.

"In Australia, there are people with (self-managed super funds) who are seeking to diversify their portfolios. Overseas, a lot of managed money funds are placing their money into gold … it's a diversified group of people but mainly private investors," ABC Bullion's Nicholas Frappell said.

Exchange traded funds (ETFs) – investment funds holding assets and traded on stock exchanges – are another way to invest in gold.

In the second quarter of this year, holdings of gold-backed ETFs reached a six-year high of 2.548 tonnes, according to the World Gold Council.

"You can go to ASX and buy and sell that ETF the same as you sell it, whether that's CommBank, BHP or what you have," said Mr Lucas.

"The (ETF) product is designed to basically replicate the amount of gold the fund is holding … it is much more liquid that is going and buying it physically or going through a broker, but you don't actually hold the physical gold itself."

Alternatively, investors can buy shares in gold mining companies. The biggest players listed on the Australian stock market are Newcrest Mining, Evolution Mining and Northern Star Resources.

If you have a tendency to have a problem with it, look at it in the opposite direction.

"You are buying the company risk of gold," said Mr Lucas.

"The catch is, unlike (the gold price) which may move 1 or 2 per cent, gold stocks might move between 4 and 10 per cent, depending on which you looked at, I know there are pros and cons to it." "

Tribeca's Jun Bei He agrees the gold miners can be volatile stocks, noting that smaller miners often raised to the ramp up exploration when the gold is high, but the fruits of exploration can be years away.

"You need to be careful about putting too many eggs in one basket in that respect. The junior gold tend to be a lot more high risk."

What if you want to actually hold your gold?

For some, holding gold through their superannuation fund or getting exposure through an ETF is not enough – they want to see it in their hand.

"It really is like having a tangible product that has no debt connected with it, that's a really powerful draw," ABC Bullion's Nicholas Frappell observed.

Physical gold can be allocated specifically to the buyer and held in storage under their name, or can be held as part of a pool account.

Pools can be allocated, where a certain portion of a group of clients, or an allocated one, which is not the supplier of the bank or dealer, that is, where the institution goes bust.

Below the streets of Sydney's CBD, gold store and other valuables in the security deposit boxes inside a vault.

"People like physical gold because it's easy to store, it's easily accessible, you're going to buy it, of course, if you've got to vault in Sydney as we have, particularly domestic buyers have to lot of confidence, "said Mr Frappell.

"So, ETFs for example, usually you are going to be based in another financial hub."

However, InvestSMART's Evan Lucas channeled to vocal gold critic, billionaire investor Warren Buffet, in his assessment of the precious metal.

"Gold doesn't make any money – it's not giving you a yield, it's not giving you a dividend, it's not producing anything or growing, it's not any other piece of metal.

"There is always a catch to look at. Yes, right here and now they would be able to give you some capital appreciation and buffer from the risks that may be coming, whether it is in bond markets, equities markets or the cash market, but, like any market, it does move the other way as well. "

For those holding gold, some forecasts have suggested the price rally may have further to run.

Citi analysts are bullish on the gold price outlook, saying prices could possibly breach $ US2,000 an ounce in the next year or two, if global growth and recession fears are realized and interest rates remain lower for longer.

Topics:

gold,

consumer-finance,

markets

business-economics-and-finance,

Australia

. (tagsToTranslate) gold (t) investment (t) bullion (t) metals (t) money (t) wealth (t) trade (t) etf (t) central bank (t) super

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