Last week, a man in Thailand robbed a gold store to cover his bitcoin losses. In terms of financial allegories, it’s hard to beat, as it follows years of talk of bitcoin and other cryptocurrencies taking over from gold as an inflation hedge. The undeniable arrival of inflation put an end to this idea.

Bullish points

Offers a balance at negative real rates

Outlook points to higher prices

ETC Stability Trumps Gold Miners

Even lower tracking costs

bear dots

No dividends

Sterling price almost unprecedented

But at the same time, interest has held steady since a surge in buying in the weeks following Russia’s invasion of Ukraine. Judging by the rate of inflows into exchange-traded funds (ETFs) and commodity exchange-traded funds (ETCs), gold’s attractiveness is still well below the levels seen in 2019 and 2020. .

Interestingly, gold buying in North America was strongest during March’s tech rebound which saw the Nasdaq 100 gain 15% and has mirrored the decline since. For the past few weeks, the price has hovered around $1,850 (£1,500) an ounce after hitting above $2,000 in March. Even after factoring in the ensuing decline, its year-to-date performance looks positively sparkling against the FTSE 350 and S&P 500 indices. With stocks and bonds no longer in vogue, gold remained a stable store of value.

Moreover, for sterling-denominated gold holders, the current price is actually not that far from the mid-2020 highs, given the strength of the dollar and the weakness of the pound. That high was driven by investors who piled into the precious metal during tumultuous global times, supporting the idea that gold is “a portfolio stabilizer in times of highly volatile stock markets,” according to bulls. ‘or Ronald-Peter Stöferle and Mark J. Valek, authors of the annual report “In Gold We Trust”.

Looking ahead, there are good reasons to be bullish on the price. But it is the security of the metal that is most attractive, especially when growth forecasts weaken and rising costs are expected to blunt corporate cash flow.

This is offset by the issue of rising interest rates, increasing the attractiveness of cash, but there is still a chasm between UK core inflation of around 9% and the domestic “no risk”, which the Bank of England has set at 1.25 per cent. hundred. In the United States, the Federal Reserve has made clear that it will continue to raise rates to curb its own inflation, although for now “real” interest rates remain negative and liquidity is eroding.

In response, institutional buyers have already started increasing their gold holdings.

“Gold and silver accounted for the bulk of net buying in the commodities sector last week as recessionary concerns helped push prices higher,” the chief financial officer said this week. Saxo Bank’s commodities strategy, Ole Hansen, referring to hedge funds and other institutional activities.

Eand bulls

The global macroeconomic outlook is not good. We’ve covered this for the past few weeks by keeping an eye on what stocks to hold when growth slows or stalls, as well as considering the outlook for heavily growth-weighted sectors like iron ore and coal mining. copper.

Metals-exposed industrial funds and stocks have sold off 15-20% over the past month, triggering a change in allocations to the CQS Growth and Income from Natural Resources (CYN) investment trust.

“We are positioned for this current economic scenario, with a large holding in gold and oil, having significantly reduced our exposure to base metals which we view as more sensitive to the economy due to a higher discretionary component. demand,” said Rob Crayfourd and Keith Watson. tell us.

Other economic indicators that have driven net purchases higher in recent months are back, thanks to efforts by G7 leaders to further limit Russian exports of energy — and even gold. Key Chinese industrial indicators such as metal and steel inventories also remain bearish. “The only hope [for macroeconomic recovery] is China, where we have exceeded the nadir in terms of activity. However, the pace of improvement is not enough to offset slowdowns elsewhere,” said Colin Hamilton, analyst at BMO Capital Markets.

So if you want to follow the CQS lead, what is the best gold exposure option? Gold miners may offer dividends and faster appreciation (or depreciation) than the commodity they are selling, but for our inflation hedging circumstances they don’t fit the bill given their correlation to the stock performance.

That leaves ETFs and ETCs, which are quite similar when viewed on a trading platform. The difference comes in the holdings, which in an ETF are more likely to be other securities, while the ETC holds the commodity itself. We’d also avoid sticking gold bars under the bed, given the paper alternatives.

The Invesco Physical Gold ETC (which trades under the ticker symbol SGLP for sterling-priced shares and SGLD for dollar-denominated ones) is linked to gold held in the vaults of JPMorgan’s banks in London, and is a strong contender given the Invesco’s desire to reduce costs. These fell to 0.12%, from 0.19% two years ago. iShares Physical Gold ETC (IE00B4ND3602) costs the same.

A more sustainable offering, courtesy of HanETF Responsible Original Physical Gold ETC from Royal Mint (XS2115336336), is more expensive at 0.22%, but the premium is for gold from scraps. Invesco, iShares and Royal Mint ETCs all follow the LBMA’s responsible sourcing rules. So the trade-off is whether you’re willing to pay an additional 10 basis points in fees for the recycled metal.

The Invesco ETC gets the green light here, but there’s little between the two cheapest options.

Alternativeare

Gold’s stamina sets the bar high for any asset claiming to be an equivalent (or greater) store of value.

While day-to-day transactions are no longer done by exchanging metals or even paper representations, one important feature is its relative stability. Silver, on the other hand, essentially follows gold, despite its greater industrial uses. Over the past year, it has both lagged gold and experienced greater volatility.

Gold miners, as above, have many other factors that affect their performance besides the price of gold: input costs, including fuel, and operational and political challenges in getting the product out. of the ground.

This can be seen in the fortunes of London-listed gold diggers, who often test the patience of shareholders. In recent years, based in Egypt Centamine (CEY) had to revise its mining plan and reduce its production. Shanta Gold (SHG) also lowered production expectations, although a first dividend and improved outlook, driven by higher prices and earnings, kept some investor confidence buoyant. The least said about Resolute Mining (RSG) the best, given its struggles and poor performance, even with gold above $2,000 an ounce.

Not everything is rough. Endeavor Mining (EDV) has strong claims to succeed Randgold Resources in UK investor portfolios, while royalty groups like Wheaton Precious Metals (WPM) offer a good middle-of-the-road option – even if the liquidity of its London-listed shares is low.

But for many, gold’s role in a portfolio is to add insurance rather than walking the risk-reward tightrope familiar to mining investors.

Gold can be an emotional space, pushed by peddlers with special pieces and late-night TV spots. But the current gap between inflation and interest rates, along with renewed institutional interest, the weak economic outlook means that a simple exposure to gold is worth having. Buying Invesco’s Gold ETC is a simple and inexpensive way to do this.

Invesco Physical Gold ETC (SGLP)
Price €144.38 Guardian J. P. Morgan Chase, London
ISIN code IE00B579F325 Typical number of farms 1
Fund type Open More details etfinvesco.com
Cut $16.1 billion Ongoing charges 0.12%
Release date 06/24/2009 Yield
Source: FactSet, company
Performance ETC ($ share share) Cash price ($)
1 year* -3.4% -3.2%
2 years 6.1% 6.4%
3 years 41.2% 41.9%
5 years 43.7% 45.2%
*Until May 31, 2022. Source: Company

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