Gold has recently hit a high for 2020 and the gold spot price is up over 10% year-to-date, hovering around $1,650 per ounce. There are different reasons behind this year’s rally, including the worries about the recent coronavirus outbreak, choppiness in the oil market, talk of a global recession, and rather volatile global equities.
All asset classes have their advantages and disadvantages. So far in 2020, gold is proving to be one of the best investment instruments. Many analysts recommend a 5% to 10% allocation of a personal investment portfolio to gold as an insurance policy. Gold can be volatile, so I wouldn’t necessarily go crazy for it. But if you also think that the recent strength is the start of a new rally in the precious metal, here are several ways you could buy into gold.
Physical gold
In 2018, global gold mine production was over 3,300 tonnes. In terms of the global supply, approximately two-thirds of the annual amount comes from mining and one third comes from the recycling of gold. Most gold produced today is used for jewellery or investing purposes.
The shiny metal’s price tends to shoot up in turbulent times as investors turn to traditional ‘safe havens’ like gold. Between 2007 and 2011, during the global financial crisis, the price of gold went from $700 per ounce to an all-time record of $1,900 in September 2011.
The current rally in the price started mainly in June 2019 when gold traded around $1,300 per ounce. It looks like the move up is finding support due to the current volatile backdrop. Could gold once again hit $1,900 in 2020?
If you want to buy the precious metal in the UK, the Royal Mint Bullion offers the opportunity to buy and sell physical gold. Alternatively, investors can consider physical gold exchange-traded funds (ETFs), such as the WisdomTree Physical Gold ETF or the Invesco Physical Gold ETC. I think this is a much better way of buying into the gold boom.
Gold miners
We cannot know the future with certainty. However, I believe the rally in gold is starting to pick up strength and the factors supporting the increase will likely remain in place in the months ahead.
So, as the price of gold increases, gold mining companies will likely have a bright 2020. This year, most miners have already benefited from renewed demand for gold. As gold prices go up, their profit margins tend to increase too. Yet many miner share prices still sit well below their 2011 highs. So there could be more room for their share prices to run.
Which miners could be worth backing now? I’d encourage investors to look for companies with a strong asset base, experienced management, and a robust balance sheet.
Within the FTSE 100 and FTSE 250, companies that mine gold include Chile’s Antofagasta, Mexico-based Fresnillo, Russian mining operation Polymetal International, and Centamin, which focuses on the the Arabian-Nubian Shield.
There are also investment funds that invest in gold miners, such as the BlackRock Gold and General, UBS Solactive Pure Gold Miners ETF, or iShares Gold Producers UCITS ETF.
Finally, it is important to remember that when a company owns a mine, it also owns all of the gold stored within it. However, there may be geopolitical risks regarding the country where the mine is located. Investors should also note that most gold stocks are low-dividend payers.