Earlier this week, spot gold prices touched a record high of $2,481 per ounce. Gold is a precious metal that is arguably the oldest currency in the world. Viewed as a store of value and a hedge against inflation, the yellow metal has generated significant wealth for long-term investors.
Should You Invest in Gold Right Now?
Gold (GCQ24) provides investors with portfolio diversification and reduces overall risk. Typically, gold thrives amid periods of economic downturns, since it's viewed as a safe-haven asset. Moreover, gold has an inverse relationship with interest rates, which makes it all the more appealing right now.
As inflation cools, the Fed is likely to begin lowering interest rates this September, which should shift capital away from fixed-income securities such as bonds and into asset classes like equities and gold. According to the CME FedWatch Tool, markets are pricing in a 98.1% chance of a rate cut in September, making gold a top investment choice in July 2024.
Additionally, gold prices have rallied to record highs this year due to strong demand from central banks such as India and China, as well as rising geopolitical tensions in the Middle East. A report from UBS claims that gold purchases by central banks are the highest in almost 60 years.
In an investor note, UBS explained, “With some central banks now questioning the safety of holding USD- and EUR-denominated assets (following the financial and debt crises and more recently the war in Ukraine), many are choosing to instead fill their reserves with gold.”
Another long-term driver for gold is the potential for the launch of a BRICS currency backed by gold, as developing economies aim to move away from a dollar-backed financial system. Finally, investment banks such as Bank of America (BAC) and Citi (C) expect gold prices to touch $3,000 per ounce in the next 12 months.
Finally, in case the U.S. economy enters a recession and the equity markets nosedive, expect bullion prices to experience another significant rally on safe-haven buying.
Basically, gold continues to validate its role in the global financial system and should be part of your investment portfolio.
How Can You Invest in Gold?
One low-cost and easy way to invest in gold is by purchasing shares of the Sprott Physical Gold Trust ETF (PHYS). The PHYS exchange-traded fund (ETF) was launched to invest and hold all of its assets in physical gold bullion. It provides a convenient alternative for investors who want to hold physical gold, without the inconvenience associated with direct investment in physical bullion.
The gold purchased by the PHYS is held in custody by the Royal Canadian Mint, a Federal Crown Corporation of the Canadian government. It means investors are sheltered from financial losses in the event of bankruptcy.
The PHYS also offers non-corporate U.S. investors a tax advantage: Capital gains are taxed between 15% and 20%, versus the 28% “collectible” rate applied to other precious metal ETFs.
In the last 10 years, the PHYS ETF has returned 78% to shareholders, trailing the S&P 500 Index ($SPX) returns by a wide margin. This year, though, PHYS is up 16.4% YTD, narrowly outpacing the SPX.
With $7.78 billion in total assets, the ETF holds 3.15 million ounces of gold, with a management expense ratio of 0.41%.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
