ASX shares aren’t having a crash-hot day today. At today’s close, the S&P/ASX 200 Index (ASX: XJO) is down around 1.09% to 6,024 points. But the mood for investors in an entirely different asset class couldn’t be more contrasting. I’m speaking of course about the surging price of gold.
Gold has again been on the climb this week and now sits at a precipitous price of US$1,886 per ounce. Why is this price precipitous? Well, because the record, all-time high for gold is US$1,920 per ounce, which was hit way back in 2011. It will only take another ~1.8% rally for this record to be broken. As this precious metal has been used as an investment long before the idea of a share market was even conceived, I think it will be a pretty momentous occasion to see it break a record high price, if it does happen.
Why is gold surging in value?
Gold is typically regarded as a ‘safe haven’ investment. Investors are attracted to this reputation, as well as gold’s tangibility and use as a store of wealth when there are uncertainties and turmoil in other asset markets. And that is precisely what 2020 is bringing us in spades. The coronavirus pandemic has devastated the global economy. And although governments and central banks are throwing everything (including the kitchen sink) at propping up markets, many investors fear this can not continue forever – especially without inflationary effects. This has led to gold being a highly desirable asset to hold in many investors’ portfolios – and explains why prices are on the march.
How to take advantage of a higher gold price
I will preface this by saying that gold has already climbed from around US$1,500 per ounce to its current level this year. As such, if you don’t already own gold, I’m afraid the train has already left the station on that front. However, for those investors who would like to take a view that gold has far further to climb, then there are many ways to take advantage.
You could always buy some good old-fashioned physical bullion. But for many investors, the costs and risks of transporting or storing this bullion may not make it a viable option.
As such, an exchange-traded fund (ETF) tracking the price of gold may be a good bet. The ETFS Physical Gold ETF (ASX: GOLD) is one such option. Units of this ETF represent ownership of physical bullion, which the fund stores in a London bank vault. GOLD charges a management fee of 0.4% per annum for the privilege though.
You could also get exposure through a gold miner. Newcrest Mining Limited (ASX: NCM) is the largest gold miner on the ASX. But there are plenty of other choices, such as Evolution Mining Ltd (ASX: EVN) or Saracen Mineral Holdings Limited (ASX: SAR) as well.
Many ASX investors don’t ever bother investing in gold. But I do think there’s a case for a small portion of a portfolio to be exposed to the yellow metal. But in the end, investing in gold is a personal choice. So if having a physical asset like gold in your portfolio helps you sleep better at night, then go for it.
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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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