The Golden era of precious metals investing

The supply of gold is relatively static, making it a limited commodity. China, Russia, and Australia were the three largest gold-producing countries in 2020. 

The price of gold is highly sensitive to changes in demand due to the relatively limited supply of gold. 

Gold is a popular hedge against economic and political instability during times of unrest. Investing in gold requires understanding the factors that affect its price, as well as the risks related to it.

As opposed to other assets such as stocks or property, gold tends to rise in value when stock markets fall. Holding it as a small part of a balanced portfolio can be a useful diversifier because of its lack of correlation with other assets.

Gold is often considered a ‘safe haven' during uncertain times, but its price can be influenced by many factors. Gold is one of the most volatile investments due to factors such as supply and demand, the state of the global economy, and political uncertainty. If you're unsure whether this is the right type of investment for you, you should seek professional advice.

A gold investment will not provide you with any income in the form of interest or dividends. As with other investments, there are no guarantees and you could get back less than you invested in gold. However, it is expected that gold will provide long-term capital returns.

If you're interested in owning gold directly, for example through bullion bars or coins, you'll need to consider storage and insurance costs, which can be expensive.

Investing in gold without physically owning it is possible with specialist funds, investment trusts, and exchange traded commodities (ETCs). An ETC is a passive investment listed on the stock market, similar to other Exchange Traded Funds. In the case of precious or industrial metals, they track the price of the metal or the price of the resource, such as coffee.

The spot price of gold, for example, is tracked by a physical gold ETC, which will provide you with exposure to the precious metal. In the gold market, the spot price is the price at which gold can be bought or sold for. A variety of gold and gold mining companies can be invested in an actively managed investment fund. The fund's performance will be less dependent on the prices of gold itself, and will be influenced by broader factors that affect the value of the companies it invests in.

Investors should consider gold miners for their upside potential. They can invest in expanding their production (e.g., developing new mines, expanding existing ones, and acquiring another gold miner) to outperform gold prices. In addition to paying a dividend, they can also provide investors with a gold-driven income stream. In a brokerage account, gold stocks can easily be bought and sold, making them highly liquid.

The gold mining industry is not without its risks, however. Underperformance of gold mining stocks can be caused by cost overruns, mismanagement, and excessive debt. Some also mine precious metals, such as silver, or other metals, such as copper. In spite of the fact that diversification reduces risk, it may dilute the impact of rising gold prices.

Furthermore, gold streaming and royalty companies provide mining companies with capital to develop and expand their operations. Streamers or royalty holders receive a fixed price for gold (streamer) or a share of gold revenue (royalty), reducing their risk.

Investing in gold can be a wise decision in times of economic uncertainty for several reasons. A country's interest rate policy and money supply determine the value of its currency. Gold, on the other hand, is determined by supply and demand. Because of this, gold is often seen as a safe haven during times of economic and geopolitical uncertainty. 

Due to concerns over the war in Ukraine, gold demand increased 34% in the first quarter of 2022, according to the World Gold Council.

Gold can provide investors with diversification along with cash, stocks, bonds, and property. In order to protect against underperformance in one asset class, such as shares, diversification is crucial.

The correlation between gold and other asset classes is often referred to as an ‘inverse correlation'. Inflation and economic uncertainty may cause stock markets to fall, so investing in gold may be more profitable. 

Owning gold, or having exposure to it through a pooled investment, comes with risks. Investors can face several disadvantages. The value of gold cannot be guaranteed. Every asset class is subject to fluctuations and volatility. When buying gold, an investor might have to wait a few years before selling for a profit. Unlike savings accounts, bonds, and dividend-paying stocks, gold does not generate an income or ‘yield' for investors.

For those with limited investment funds, trading physical gold can be challenging. Verifying authenticity and storing gold safely are also important when buying physical gold. 

Throughout human history, gold has been considered a rare commodity and a vital part of our economic system. The World Gold Council estimates that the precious metal was first used as currency in 550 BC. 

The gold standard, which links a nation's currency directly to gold, was still in place in the UK until 1931. The dollar became the world's reserve currency only after former US President Richard Nixon abandoned the gold system in 1971.