Some investors think buying gold makes no sense. I respectfully disagree.
Today, I’ll explain why getting some exposure to the shiny stuff (alongside quality stocks, of course!) is a good idea. This is the case even after the recent price action that has seen it soar to well over $1,700 per oz.
The mighty hedge
It’s not that I don’t appreciate the objections to holding gold. It’s certainly true that the precious metal doesn’t earn any profits by itself. It’s also true that it doesn’t pay any dividends to holders. Reinvested, the latter can boost returns through compounding over time.
But consider some of the advantages.
For one, gold has a reputation for being a great hedge against stocks crashing. During the Financial Crisis, for example, the price of the precious metal rose strongly. This reaction is worth bearing in mind if you think markets may fall again in 2020.
Aside from being a great portfolio diversifier, gold is tangible and hard to steal. Contrast this with something like Bitcoin. While the value of both depends only on what people will pay for it, you can’t actually get your hands on the cryptocurrency. There have also been many cases of sophisticated thieves stealing Bitcoin from investors.
Add to this a finite supply and likely growth in demand as people in emerging markets become more affluent and I think there are far worse destinations for your capital.
The silent killer
There’s one final reason why gold could continue to be a sound buy in 2020.
The fact that central banks, particularly in US, have been printing cash like there’s no tomorrow could mean a rise in inflation. Gold offers some protection against this.
As excessive money-printing erodes the value of the dollar, the cost of gold in dollars rises with everything else. In other words, when the dollar gets weaker, gold gets stronger. This goes some way to explaining why the gold price has soared in recent months.
So, how do I buy gold?
One good way is to buy shares in a miner. In the large-cap space, there’s £8bn-cap Polymetal International. FTSE 100 peers Fresnillo and Antofagasta will also provide some exposure. In the FTSE 250, there’s Centamin.
Those willing to endure volatility might want to take a look at minnows SolGold and Greatland Gold. The former is now 139% above its mid-March lows. Greatland has done even better, up 183%. Had you picked up the latter at the beginning of 2020, you’d be sitting on a stonking 384% gain!
Personally, I adopt a more conservative approach.
Right now, I have a holding in the iShares Gold Producers UCITS ETF. This invests in a basket of gold miners rather than just one, thus reducing capital risk. The fund is up 70% since mid-March.
I also hold the iShares Physical Gold ETC, which tracks the price of the precious metal. This has an ongoing charge of just 0.19% and is up 17% since the crash.
As always, the Fool UK team recommends holding whatever you buy in a Stocks and Shares ISA or Self Invested Personal Pension (SIPP). Any profits you make will then be free of tax.
Buying gold has paid off so far this year and it doesn’t seem absurd to think its price will continue rising for a while. Perhaps the all-time high of almost $1,900 back in 2011 may be broken!
The post Gold is soaring in price. Here’s why I’d still buy more for my ISA appeared first on The Motley Fool UK.
- Have £1,000 to invest? I’d buy bargain FTSE 100 shares in this stock market crash
- Have £10k to invest in FTSE 100 stocks? Here’s what I’d do
- Every stock market crash offers cheap shares. I'd buy FTSE 100 stocks now to retire early
- 'Britain's Warren Buffett' has been buying these shares in the stock market crash
- I'd invest £2k in these 2 bargain FTSE 100 shares to become an ISA millionaire
- Top shares for 2020
Paul Summers has has shares in iShares Gold Producers UCITS ETF and iShares Physical Gold ETC. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020