With all of the drama, volatility and success that we’ve seen in the S&P/ASX 200 Index (ASX: XJO) recently, gold as an asset has slipped under the radar somewhat. Yet the gold price is today sitting at record highs and just below its all-time high. Given that gold has been used as an investment and a store of wealth for thousands of years, seeing it approach its most expensive price in history is something to pay attention to.
Yes, the yellow metal was commanding a price of over US$1,820 per ounce this week. Considering it was only asking around US$1,415 this time last year, I would say that gold is well on the way to breaching its all-time high of US$1,920 per ounce that we briefly saw back in 2011.
What is fuelling gold’s rise?
Gold is a ‘safe haven’ asset that investors usually turn to in times of economic uncertainty and risk. As gold’s supply is finite and its value intrinsic, the metal is often perceived as a good hedge against currency debasement and share market manipulation – both of which are concerning many investors currently. That’s because, in their efforts to hold up the world economy in the face of the coronavirus pandemic, central banks are printing money and issuing bonds at rates never before seen in history. Since 2008, the United States Federal Reserve has increased its balance sheet from around US$900 billion worth of assets to more than US$7 trillion. Around half of that increase has been added in just the past 3½ months.
That has some investors very worried. And precious metals are viewed by many of these investors as the best hedge against such trends.
Is it too late to invest in gold?
Many investors don’t feel the need to invest in gold – and fair enough too. Any precious metal is an unproductive asset which gives off no yield. It’s hardly the best asset to grow wealth. But I do acknowledge the appeal of a gold position in these uncertain times. So if you are this way inclined, I do think there’s still some room left for gold to move even higher. We are right now sitting in a ‘perfect storm’ for the yellow metal. Economic uncertainty abounds, we are in the midst of a global pandemic, and geopolitical tensions are at their highest level in years. In my view, all of these powerful forces are highly supportive of continued growth in gold prices.
If you don’t want to hoard bullion under your bed, an easy way to get exposure to gold is through exchange-traded funds (ETFs) like the ETFS Physical Gold ETF (ASX: GOLD). ASX gold miners are another route you can consider. Newcrest Mining Limited (ASX: NCM) is the ASX’s largest gold miner, but there are many other mid-tier companies you could also explore.
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Motley Fool contributor Sebastian Bowen owns shares of Newcrest Mining Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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