In December 2023 gold reached new all-time highs above $2,100 an ounce and it has been above $2,000 for all of 2024 to date.

So far in the 21st century gold has even outperformed the total return from the S&P 500 – one of the best performing equity markets globally.

According to the World Gold Council in 2023 the precious metal beat the performance of emerging market stocks, US bonds, the US dollar, global treasuries, and commodities in general. One of the most cost effective and straightforward ways to gain exposure to gold is exchange-traded products and we will explain why later in this article.

WHY INVEST IN GOLD?

The precious metal is often viewed by investors as a ‘safe haven’ during periods of geopolitical tension and economic uncertainty.

ETF provider WisdomTree’s head of commodities and macroeconomic research Nitesh Shah says gold can function as a ‘hedge against inflation’ for investors as well as having ‘defensive’ and ‘cyclical’ qualities as part of a diversified portfolio.

He adds: ‘Although geopolitical risk seems to have calmed down a little since October 2023, when the Israel-Hamas war broke out, this source of risk remains elevated.

‘In December 2023, Houthi attacks on ships in the Red Sea highlighted that tensions in the Middle East are not simply confined to Israel-Gaza. Chinese president Xi Jinping used his annual new year address to the nation to sound a warning to Taiwan’s voters, days ahead of the island’s presidential election. He said, reunification of Taiwan and China was a historical inevitability.

‘Many analysts had thought the prolonged war in Ukraine would be a deterrent to Xi in pursuing annexation of Taiwan, but recent rhetoric from Xi indicates that risk is still on the cards.’ 

A peak in the current interest rate cycle is also potentially supportive for gold prices. Because the precious metal offers no income, it tends to have an inverse relationship with ‘real’ or inflation adjusted interest rates.

Another big driver for gold in recent times is demand from central banks as they seek to diversify their reserves. Gold’s inverse relationship with the US dollar, another major reserve asset, is an element of its appeal for central banks. When the dollar drops in value, gold typically rises, enabling central banks to protect their reserves when markets are volatile.

Analysts at JP Morgan are positive about both gold and silver. Gregory Shearer, head of base and precious metals said: ‘Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025, though timing an entry will continue to be critical.

‘At the moment, gold still appears quite rich relative to underlying rates and foreign exchange fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts.’ JP Morgan forecasts gold prices will peak at $2,300 per ounce in 2025.

HOW TO INVEST IN GOLD

Whatever the short-term trajectory for gold there are decent arguments for having exposure to the precious metal as part of a diversified portfolio. There are several ways to invest in gold. You can in theory buy the physical product – a kilo, coins, or a 400-ounce bar. The latter would set you back around $798,435 in today’s money and be pretty heavy to carry.

There would also be the cost of storing physical gold (which adds up). It is not surprising then, that people invest in gold instead through funds, investment trusts and gold mining shares.

Among the lowest-cost options can be found in the exchange-traded product universe. These gold vehicles are not ETFs (exchange-traded funds) because their single-asset focus means they don’t meet diversification criteria. Instead, they are known as ETCs (exchange-traded commodities). They are easy to buy and sell and can be held in a SIPP or ISA.

THE RANGE OF GOLD ETCS

Many providers offer gold-related ETCs including Xtrackers, WisdomTree, Invesco, BlackRock and Amundi. Most are backed by securely stored physical gold bullion. Providing all the benefits and security of owning physical gold at a significantly reduced cost compared to those you would face as an individual.

There is even a gold ETC backed by the Royal Mint and created in partnership with HANetf. This product is backed by LBMA (London Bullion Market Association) good delivery bars that are sourced on a best endeavour basis from the LBMA’s Responsible Sourcing programme to assure investors that the gold is from conflict-free, legal sources. However, soothing any ethical concerns does come at a higher cost than the more plain-vanilla gold ETCs.

The table compares the main products by both cost and three-year performance.

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