Gold is up about 19% so far this year, as lower interest rates and central bank stimulus have supercharged existing upward momentum for the precious metal.
Gold is typically seen as a “safe haven” asset in times of uncertainty because it is less volatile than other investments, like stocks. What’s more, the metal moves inversely to the U.S. dollar, meaning that when the greenback moves lower — as it has done lately — gold moves higher.
The current coronavirus downturn is slightly different, however.
Gold is being pulled in two directions.
director of metals demand, Refinitiv
Even as Covid-19 cases have risen and economic data worsened, equity markets have continued to rally. Cameron Alexander, director of metals demand at market data company Refinitiv, said that has caused gold to enter new trading territory.
“Gold is being pulled in two directions: One is the uncertainty,” said Alexander, referring to the still-escalating pandemic. “But equities are still doing really well,” fueled by central bank stimulus, he noted.
Prices set to rise
As the pandemic rattled markets in late-March, gold too suffered a sell-off as investors rushed to free up cash.
Since then, however, buyers have returned to gold, seeing it as a safe store for their money. So far this year, inflows into physical gold exchange-traded funds (ETFs) globally is around $12 billion, according to BlackRock iShares data.
That has experts predicting higher swings ahead. “I wouldn’t be surprised to see gold test the all-time highs set in 2011 at around $1,900 per ounce,” Thomas Taw, head of APAC iShares investment strategy at BlackRock, told CNBC Make It.
Last month, Bank of America backed a similar “all-time high” prediction. In April, the bank said the precious metal could hit $3,000 per ounce. BofA Securities’ commodities strategist Michael Widmer said that surge would be fueled by continued global uncertainty — at least over the next few years.
“At the moment there’s an awful lot of concerns (keeping gold up),” Widmer told CNBC Make It. “We need a little bit more visibility before gold prices start peaking.”
Is now the time to buy?
That bullish outlook suggests high potential returns ahead. Yet with prices already at multi-year highs, the entry costs are significant, too.
That raises the question of when to buy. However, Albert Cheng, CEO of Singapore Bullion Market Association, said the question should be rephrased from “when” to “how much?”
There is no good time to buy gold … every investor should have some.
“There is no good time to buy gold,” said Cheng, who said he sees the asset hitting $2,000 per ounce by the end of the year. “Every investor should have some gold in their portfolio.”
Typically, financial advisors recommend a gold allocation of 1% to 5% of an individuals’ overall portfolio. Cheng said that could shift higher from 5% to 15%.
“Gold remains a very small proportion of most people’s portfolio. But even an increase of 1 to 2% can have a massive bearing,” said Refinitiv’s Alexander.
How to invest?
While gold is one of the world’s earliest forms of currency, there are now multiple ways to hold the precious metal for investment purposes.
“Investors should first decide why they want to own gold,” said BlackRock’s Taw. “Is it for return potential or portfolio diversification?” Then you should familiarize yourself with the various options and the risks involved, he said.
Here are few ways you can get started.
Buy physical — Physical gold bars and coins is the most traditional way to own gold. “It is very liquid and easy to buy in one place and sell in another,” said Alexander. Physical gold assets can now be purchased at banks, among other places, but buyers should be aware of additional costs such as insurance and storage.
Buy ETFs/ETCs — Exchange-traded funds and exchange-traded commodities are vehicles that allow you to track the underlying price of gold without having to physically hold the asset. “If you just want to play the gold price, the ETF options have been popular,” said BofA’s Widmer.
Buy gold-related stocks — Companies directly linked to gold, such as gold miners or gold producers, are another way to hold gold, as they tend to mirror its performance. However, they are also susceptible to stock market swings. “In a bull rally they do very well, but they are susceptible to pull backs,” said Alexander.
Buy alternatives — Alternative vehicles such as gold-backed cryptocurrencies or foreign exchange trades offer another way to buy into gold, though these are typically for more experienced investors.
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Phillip Peters is an independent journalist, entrepreneur, digital marketer and press release publisher. He has a soft spot for technology, gadgets, cryptos and writing about health and politics. He also loves travelling the world! Phillip has been working with KukaUSA full time since September 2018.