Should you buy ASX gold ETFs right now?

Is gold a 2024 fad or still a good long-term investment?

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Investing in gold and gold exchange-traded funds (ETFs) has been a trend clearly on the rise in 2024 to date. As we've documented here at the Fool extensively this year, new record highs for the price of gold have spurred many investors to take the plunge with a gold-backed investment.

But should investors still be buying ASX gold ETFs in May of 2024? That's what we'll be discussing today.

As we've just touched on, this year has been an extraordinary one for gold. The precious metal began the year at US$2,077 per ounce but has climbed up to roughly US$2,360 today. That comes after gold hit a new all-time high of around US$2,415 an ounce just last month.

Remember, it was only as recently as late 2018 that gold was asking under US$1,200 for that same ounce. 2022 also saw gold retreat to roughly US$1,600.

So the gold market is unequivocally enjoying a boom.

This, of course, has meant that gold-backed investments like gold miners and precious metal ETFs have also been rising in value.

To illustrate, the VanEck Gold Bullion ETF (ASX: NUGG) – a popular ASX vehicle for gold investment – has soared by almost 25% in value since October.

Other similarly structured ETFs, including the Global X Physical Gold ETF (ASX: GOLD) and the Perth Mint Gold ETF (ASX: PMGOLD), have performed commensurately.

But is there still steam left in this gold rush? Or is it too late to hop on the gold bandwagon?

Should investors still consider gold ETFs in May 2024?

Well, one commentator still preaches that gold is an asset class that investors ignore at their peril. ETF provider Global X (operator of the GOLD ETF listed above) is arguing that gold's returns over the past ten years, together with its inverse correlation to other assets like shares, make it a great choice as part of a diversified portfolio.

In a discursive piece, Global X found that gold returned an average of 9% per annum over the ten years to April 2024, underperforming the US markets but outperforming ASX shares.

Over an even longer period of time, the report found that gold was advantageous to hold:

Adding gold has increased the annual returns of Australian portfolios for a given amount of risk for most levels of risk and return over the past 20 year…

Gold has had these effects because the gold price is uncorrelated with Australian risk assets (shares, property). Furthermore, and crucially, gold maintains these low correlations while performing relatively strongly over the longer-term. In sum: gold provides diversification that works.

The report also argues that one of gold's main advantages for investors is the inverse correlation to other asset classes. This results in gold performing an 'insurance' role in a diversified portfolio:

In asset allocation, gold's role is diversification. This makes it different from property, shares, and bonds – which provide income, capital growth and capital stability, respectively….

Insurance is the ultimate form of diversification. When the value of one's car or house – or whatever else is insured – falls or disappears entirely, an insurance policy can pay out…

While not the same, gold's role in asset allocation can be understood in similar terms. Gold tends to perform well when other assets struggle, thereby limiting losses. It does this due to its tendency to perform well during crises and its low correlations with other assets.

It should be noted that Global X isn't exactly unbiased here, even though it runs one of the ASX's most popular gold-backed ETFs. However, the report makes for some compelling reading for anyone interested in gold as an investment.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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