After a stellar year in 2020, gold has come off the boil in 2021 so far. Last year saw the price of gold break its 2011 record high, and brought renewed interest in the metal for its fabled ‘hedge against chaos’ properties.
This is understandable. You could not ask for a more perfect environment for gold, the ultimate ‘safe haven’, than a global pandemic. But what of gold as an investment for 2021?
Well, gold has certainly been falling. According to Bloomberg, the price of gold today is sitting at US$1,729 an ounce. That’s well below the US$1,895 an ounce at which it started the year, and even further away from the peak of US$2,069 that we saw back in August last year.
But does that mean we should be considering investing in gold right now? ‘Buy low, sell high’ and all.
Gold as an investment in 2021
Gold is far from the perfect investment. As its critics will tell you, gold is just a metal. Unlike property or shares of a company, it produces no yield. And with storage costs and possible insurance, it will probably actually cost you money to even hold it.
But there are still potential reasons to consider gold as a useful investment in 2021. Billionaire investor and Bridgewater Associates fund manager Ray Dalio agrees. Dalio has just released an article on the matter, in which he stated the following:
The economics of investing in bonds (and most financial assets) has become stupid… Imagine that the economy is a person and government policy makers are doctors. When the economy’s pulse plunges the doctors run to inject a big dose of stimulation into it. When you see them running to the patient and injecting the giant dose of stimulation, you should buy reflation assets like stocks, inflation-indexed bonds, and gold because the response to the stimulation will initially cause these assets to rise before the stimulation passes through to the economy and the patient starts running around.
Because gold’s supply is finite, it is an asset that will theoretically perform well in an inflationary environment, such as the one Dalio is predicting will come to pass.
Dalio went on to say this:
I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars.
So his recommendation seems to be that owning gold as a part of a diversified portfolio is a prudent idea.
So how does one do this?
Well, there are a few options. There’s always the physical metal itself in bullion form. However, the cost of buying gold this way can be prohibitive to many investors. As such, you can always consider buying an exchange-traded fund (ETF) that holds gold. An example on the ASX would be the ETFS Physical Gold ETF (ASX: GOLD).
There are always mining companies too. If a company owns a gold mine, it technically owns all of the gold within it. You would also own part of this gold by extension as a shareholder. The ASX’s largest gold miner is Newcrest Mining Ltd (ASX: NCM), but there are quite a few others to choose from as well.