Kris Walesby
Gold prices and safe haven assets have skyrocketed in the face of the global economic sell-off. ETF Securities argues that gold, specifically, still remains highly relevant for investors, despite the price rise.
“Gold is one of the best-known hedges against financial market risk and as a result, soared to seven-year highs of $US1665/ounce on Monday,” notes ETF Securities CEO Kris Walesby.
He says: “Uncertainty over the ongoing path of coronavirus has already hit a range of industries, from travel to manufacturing, as countries try to implement a range of measures in the attempt to control the spread. It is anyone’s guess as to how long the situation will continue and what happens next.
“One investment that can weather this storm is known to be gold, which can be more than just a safe haven during sharemarket volatility.
“It can also offer diversification against all asset classes. Its ability to perform in all markets as both a consumer-driven, as well as an investment-driven asset, means it has both defensive and growth characteristics.
“The low interest rate environment, since 2017, has prompted investors to increase their allocations to gold. We will continue to witness the increased interest in gold as ‘lower for longer’ interest rate environment becomes the norm and may even accelerate given the new wave of Quantitative Easing that might be introduced.
“We expect gold prices to remain high in light of these changes.
“The chart below shows how gold has been able to offer solid returns over the long-term, comparable to other growth assets like equities and commodities, and outperforming fixed interest and cash.
Mr Walesby says: “While physical gold holdings, derivatives in the form of futures contracts or using gold mining stocks as a proxy may have been the primary options for investment in the past, ETFs have made this commodity more accessible than ever to investors globally.
“ETFs are typically easier to use compared to physical gold holdings, requiring as little as a share trading account to get started and can be done anywhere. It can be less intimidating for many investors who may not be aware of even where to start for physical purchasing and trading.”
The first gold-backed ETF was launched in 2003 by ETF Securities. In gold-backed ETFs, physical gold is purchased and stored by a fund manager as part of a trust and investors buy units in the trust for exposure to the market movements of gold.
Mr Walesby says: “This ETF trades today as ETFS Physical Gold (ASX:GOLD) and held more than A$1.5 billion in assets as at 6 March 2020, along with over 1,500 bars of gold bullion.”