With gold flirting with all-time highs, here’s a quick overview of its price factors, outlook and the best ways to invest in it today.
(Picture: Zlaťáky.cz, Unsplash)
Where Does Gold Stand on 27 September 2024?
As of 27 Sep 2024, the New York spot price for gold ended Friday at just above USD 2’658 per troy ounce, staying close to its all-time highs. So far in 2024, gold has risen by nearly 30%, outperforming the S&P 500, which has gained around 20% since the beginning of the year.
What Factors Are Driving Gold Prices Up?
Geopolitical uncertainty: Gold is often seen as a safe haven during times of global unrest. Recent geopolitical tensions, such as Israel's strikes in Lebanon, ongoing conflicts in Gaza and Ukraine and concerns in the U.S. over elections and inflation, are driving demand for gold as a secure investment.
Lower interest rates: Expectations of further rate cuts by the Federal Reserve are pushing gold prices higher. Lower interest rates make non-yielding assets like gold more attractive, and a weaker US dollar makes it cheaper for global buyers.
Strong demand from central banks: Increased demand for gold by central banks globally is pushing prices up. For example, India’s gold imports surged 221% in August due to lower import duties and festive demand.
China's stimulus measures: Recent economic stimulus in China, including interest rate cuts and measures to boost consumer spending, is expected to drive retail investment in gold, supporting its price growth.
Where is Gold Heading?
If current trends persist, analysts hold a bullish outlook for gold in the coming months. They foresee gold stabilizing around USD 2’800 per ounce by the end of 2024, potentially reaching USD 3’000 in 2025. Investors refer to gold as a "safe haven", emphasizing its role in diversifying and balancing portfolios while helping mitigate potential risks.
How To Invest Best Into Gold?
Investing in gold can be done in a variety of ways, each with its own advantages and drawbacks. Here’s a breakdown of the main methods:
Gold ETFs
A gold ETF (Exchange-Traded Fund) is an investment vehicle that tracks the price of gold and is traded on stock exchanges, similar to individual stocks. This type of fund allows investors to gain exposure to gold without the need to purchase, store or secure physical gold. Gold ETFs typically hold physical gold or gold-related assets, making them a convenient option for investing in the gold market while offering liquidity and diversification.
Popular gold ETFs include the VanEck Junior Gold Miners UCITS ETF, which targets smaller mining companies for growth potential, and the VanEck Gold Miners UCITS ETF, which invests in larger firms to balance risk and reward. Additionally, the iShares Physical Gold ETC and the Invesco Physical Gold ETC both provide direct investment in physical gold, closely tracking its market price without the hassles of storage.
Pros: Gold ETFs provide easy, liquid exposure to gold without the need for physical storage. They closely track gold prices and have lower transaction costs, making them accessible to most investors.
Cons: ETFs come with management fees that reduce returns over time, and investors don't own the physical metal. There’s also a slight counterparty risk since the ETF is managed by financial institutions.
Physical Gold (Bars and Coins)
Gold bars are standardized blocks of gold that come in various weights, typically ranging from 1 ounce to several kilograms. They are primarily used by investors looking to hold large amounts of gold in a single purchase.
Gold coins are minted coins that contain a specific amount of gold. Popular examples include the American Gold Eagle, Canadian Gold Maple Leaf and South African Krugerrand. These coins often have a face value and can also carry numismatic value based on their rarity and condition.
You can buy gold bars and coins from various sources, including specialized precious metal dealers, online retailers like APMEX and JM Bullion and local coin shops that allow you to inspect products in person. Auctions, both online and physical, can also provide opportunities to find unique gold items. Additionally, some banks may sell gold bullion or coins, though availability can vary by location.
Pros: Physical gold offers direct ownership and acts as a hedge against inflation and currency risks. It's a tangible asset with intrinsic value, and there's no counterparty risk involved. It also holds appeal for those who prefer holding something physical.
Cons: Storage and security are costly concerns, often requiring vaults and insurance. Physical gold is less liquid than other forms and selling involves fees and premiums. It also doesn't generate any income, relying solely on price appreciation.
Gold Mutual Funds
Gold mutual funds are investment vehicles that pool money from multiple investors to purchase shares of gold-related assets, such as gold mining stocks or ETFs that track the price of gold. These funds are typically managed by professional portfolio managers, offering diversification and professional oversight.
You can invest in gold mutual funds through various platforms, including brokerage accounts, financial advisors and investment apps. Popular gold mutual funds include the Vanguard Precious Metals and Mining Fund, Fidelity Select Gold Portfolio and the Franklin Gold and Precious Metals Fund.
Pros: Gold mutual funds offer diversification and professional management, spreading the risk across various gold-related assets like mining stocks and ETFs. They provide easier access for investors seeking exposure to the gold market.
Cons: Management fees can eat into returns, and performance depends on the fund manager’s decisions. Investors do not own physical gold, and underperformance in stock selection can lead to lower-than-expected returns.
Gold Mining Stocks
Gold mining companies are firms engaged in the exploration, extraction and production of gold. Investing in these companies allows you to gain exposure to gold prices while also benefiting from the companies' operational efficiencies and profitability.
Major players in the industry include Barrick Gold, Newmont and Rio Tinto (focuses on various minerals), which are known for their significant gold reserves and production capabilities. You can invest in gold mining companies by purchasing their stocks through brokerage accounts or investment platforms.
Pros: Mining stocks often outperform gold during bullish markets, and some companies offer dividends, providing additional income. Investors can benefit from a company’s profitability and scalability.
Cons: Mining stocks carry risks unrelated to gold prices, such as operational and geopolitical risks. They can be more volatile than the metal itself, and picking individual companies adds another layer of complexity.
To illustrate this, we compared the indexed performance of gold per troy ounce with that of major mining companies, including Newmont, Barrick Gold and Rio Tinto, using 1 Jan 2024 as a baseline (indexed at 100).
By 27 Sep 2024, the price of gold rose from 100 to 130. While Newmont significantly underperformed in the first half of 2024, it eventually achieved an indexed performance of 132. Barrick Gold saw a return of 13%, while Rio Tinto underperformed, which may seem surprising given the rally in gold prices. However, this underscores the notion that numerous factors influence mining stocks, particularly since Rio Tinto is not solely focused on gold but also mines other minerals.
This comparison highlights that despite strong performance in gold, mining stocks do not always correlate with gold prices, illustrating the complexity of investing in this sector via mining stocks.
Gold Jewelry
Gold jewelry is a popular way to invest in gold while enjoying the added benefit of wearability. No real explanations are needed here - think rings, chains, necklaces and bracelets. When it comes to purchasing gold jewelry, many people turn to renowned countries like Switzerland, United Arab Emirates and the United States. Popular brands include Cartier, Tiffany & Co. and Bulgari, which offer high-quality pieces that combine luxury with intrinsic value.
Pros: Gold jewelry combines investment with wearability, holding cultural and sentimental value. It can serve as both a luxury item and a store of wealth, and its appreciation depends on market value.
Cons: Jewelry is usually overpriced due to design and craftsmanship, making it more expensive than its gold content. Its resale value can be subjective, and it depreciates over time due to fashion trends and wear.
Other Investing Methods
In addition to these methods, there are alternative ways to invest in gold, such as certificates, futures and options, savings accounts and even digital gold (gold-backed cryptocurrencies). While these options offer various benefits like cost-effective ownership, leverage and diversification, they often come with higher complexity and counterparty risks or require more advanced knowledge. For most investors, the methods described above are simpler, more liquid and provide a clearer balance between risk and reward, making them more practical and popular choices.
Conclusion
Gold remains a strong safe-haven investment, particularly with rising geopolitical tensions and lower interest rates driving its value. While the best way to invest depends on individual goals, for most investors, gold ETFs offer the ideal balance of convenience, liquidity and low cost, providing easy access to the gold market without the complexities of physical ownership. For those looking to combine investment with enjoyment, owning gold jewelry can also be a worthwhile option. We recommend allocating around 5%-10% of a portfolio to gold to capture its potential benefits*. With the possibility of gold reaching USD 3'000 per ounce, the upside remains promising heading into 2025.
*Disclaimer: this article is for illustrative and informational purposes only and does not obligate you to make any investment decisions. We do not accept responsibility for any decisions made based on this article. Please conduct your own due diligence before making any investment decisions.
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