The price of gold has risen in 2020, so far. Driven by the high level of economic uncertainty associated with Covid-19, as well as an unprecedented amount of stimulus from central banks, the gold price has jumped from $1,520/oz to $1,732/oz.
Some analysts believe the gold price can go much higher though. According to analysts at Bank of America, the price of the yellow metal could potentially rise to $3,000 over the next 18 months. “As central banks and governments double their balance sheets and fiscal deficits, respectively, we have also decided to up our 18-month gold target from $2,000 to $3,000/oz”, they wrote recently.
If you’re bullish on gold and expect the price to keep rising, there are a number of ways to gain exposure to the commodity. Here’s a look at three options.
Gold bullion
One is to simply buy gold bullion (physical gold). You can buy through high street gold dealers (this may be challenging in the current environment) and online gold dealers.
The advantage of this approach is that you can take possession of your gold. However, on the downside, costs can be high, and you’ll also need to store it securely.
ETFs: an easy way to profit from a rise in the gold price
Another option is to invest in a gold exchange-traded fund (ETFs). These are securities listed on the stock market and designed to track the gold price. On investment platforms such as Hargreaves Lansdown, you’ll find plenty of gold ETFs and you can hold them within an ISA or SIPP.
The main advantage of gold ETFs is that they’re a very convenient way of investing in gold. You can literally invest within minutes. You also don’t need to worry about storage. On the downside, you can’t take physical possession of the commodity.
Gold stocks
Finally, a third way is by investing in gold stocks. These often rise when the price of gold is rising. This is because a higher gold price generally translates to higher revenues and profits for the underlying company.
In the UK, there are many gold-producing companies listed on the London Stock Exchange. One example is FTSE 100 company Polymetal International. It’s a top-10 global gold producer with assets in Russia and Kazakhstan. Year to date, Polymetal shares are up over 40%.
Another example is FTSE 250 gold miner Centamin. It’s a company focused mainly on mining gold in Egypt. This year, it’s up about 27%. Other UK gold stocks that have performed well in 2020 include Petropavlovsk, Highland Gold Mining, and Greatland Gold.
A word of caution, however. Gold stocks can be volatile. While they can deliver fantastic returns when the gold price is rising, they can also fall sharply when gold falls. It’s also worth noting that related stocks don’t always rise when the price is rising. Gold mining is a complex business and there are many things that can go wrong.
So, if you’re thinking about investing in gold stocks in order to profit from the gold price, it’s a smart idea to focus on risk, as well as reward.