Gold has been coveted for thousands of years, its beauty, versatility and reputation as a safe haven irresistible. From gold bars to mining stocks and ETFs, there are many ways to get involved. But has gold historically been a good investment? CNBC Pro explores the pros and cons of investing in gold, where you can put your money and the potential risks involved. “It's a nice-looking thing and people like to own it,” Panmure Liberum research analyst Tom Price said on a CNBC video call. Unlike other precious metals, Price said, Gold does not oxidize, is stable at room temperature, and has the same properties no matter where it is extracted. “Portability, divisibility, fungibility and stability are almost the defining characteristics of primitive money, which is why gold has such value.” Gold prices have also been strong recently in 2023 due to high geopolitical tensions, increased central bank buying and expectations of higher interest rates. It is up 13% on the year and up more than 17% year to date as of mid-July. U.S. interest rates cut. Spot prices in New York are trading around $2,465 an ounce at the time of writing, with analysts optimistic about the future. Bank of America and Citigroup strategists both said gold could hit $3,000 an ounce within the next 18 months. ‘Store of Value’ When markets are volatile, gold’s role as a ‘store of value’ comes into play for many investors. UBS said it was “an effective hedge against geopolitical polarization, inflation or excessive deficit concerns,” while Berenberg noted that gold “remains favored in volatile markets.” When investing for the long term, “Why not own some gold?” asked independent commodities advisor Robin Bhar in a phone interview with CNBC. “You don't know what the world will look like in 15, 20 years, and owning some gold may or may not pay dividends to you.” Gold is also often considered a hedge against the U.S. dollar and inflation. XAU= ALL mountain Spot Gold Price Since gold is usually priced in US dollars, it tends to have an inverse relationship with the currency (although this is not always the case). When it comes to inflation, the World Gold Council says gold has outpaced the Consumer Price Index since the 1970s. “In years when inflation was between 2%-5%, gold prices rose an average of 8% per year,” the trade association said on its website. As long-term inflation rises, Amy Arnott, portfolio strategist at Morningstar, said As a hedge, gold performed well. But over shorter periods, the record is more “complex,” she noted, citing historical fluctuations. “Gold did perform well during the high-inflationary years of the 1970s, when soaring oil prices and a rapid expansion of the money supply pushed U.S. inflation to historic highs. But in other periods, such as the early 1980s and 1988-91, Gold has fared less well. Some investors point to other investments – such as Treasury inflation-protected securities – offering better protection against rising prices in some cases, said John Meyer, director of research at corporate finance firm SP Angel. In a crisis, investors can expect gold prices to fall, but gold prices “generally recover faster than other investments, providing investors with a greater degree of protection than many other instruments.” he told CNBC via email. Market experts who spoke to CNBC Pro said investors should consider holding about 2% of their portfolios in gold, although they said it may be worth adding more depending on one's personal view of the global outlook. An upper limit of 5% to 10% is generally recommended for gold allocations, and many view it as a key way to diversify their portfolios. There are many ways to gain exposure to gold, including investing in physical products, buying gold-related stocks such as mining companies, or choosing exchange-traded funds (ETFs). Price said there are certain benefits to owning gold coins or bars for some people, but there are also benefits to buying physical products, especially if you're particularly nervous about geopolitical events and the macroeconomic outlook. For some people, “all they want to do is own real metal because they have a very specific reason, which is about inflation protection, doomsday protection, that kind of thing.” However, sometimes there are major considerations to be made Tax Implications. Lucky for UK investors, gold coins produced by the Royal Mint are exempt from capital gains tax (a tax levied on profits earned when selling goods) and are exempt from VAT (or VAT, usually 20%). However, in the United States, gold is classified as a collectible, and both physical gold bars and ETFs are subject to capital gains taxes of up to 28%. Gold ETFs If you don't want to hold and be responsible for storing gold bullion yourself, buying an ETF that actually holds gold is another way to invest. “It's actually very simple,” said Colin Hamilton, commodities analyst at BMO Capital Markets. “You have the physical material, but you don't have it in your hand,” he told CNBC via video call. The GLD 5Y mountain GLD SPDR Gold Shares ETF is the world's largest, with BlackRock's iShares Gold Trust and iShares Physical Gold ETC ranking second and third respectively. Other top physical gold ETFs include Borse Commodities GmbH Xetra-Gold and SPDR Gold MiniShares Trust. Gold Mining ETFs Buying gold mining ETFs (which hold shares of multiple gold mining companies) is another way to gain exposure to gold, with Meyer describing those funds backed by large banks as “relatively weak” in an email to CNBC. Safety”. Some of the world's top ETFs include the VanEck Gold Miners ETF and the VanEck Junior Gold Miners ETF, which invest in smaller companies that may be involved in exploration. Other top ETFs include iShares Gold Producers UCITS ETF USD, VanEck Gold Miners UCITS ETF Accum A USD and iShares S&P/TSX Global Gold Index ETF. Single stocks For those interested in buying single stocks, Meyer said he expects Barrick Gold Corp and Newmont Mining Corp to “continue to perform” and selected British companies Resolute Mining, Centamin, Hochschild Mining and Caledonia Mining. “[They]all appear to be respectable and valuable companies,” he said. Meanwhile, GOLD 5Y mountain Barrick Gold Panmure Liberum has buy ratings on Caledonia Mining, which operates gold mines in Zimbabwe, and London-based Endeavor Mining, which operates gold mines in West Africa. Berenberg analysts also have Endeavor and Pan African Resources among their buy-rated picks. Stocks or physical gold? Owning mining ETFs and stocks gives investors exposure to the price of gold, and stocks tend to rise in tandem with the metal rather than directly correlating with price movements in the physical metal. However, Price said this could also have a negative impact, as gold-related stocks are “known” to underperform the price of the metal itself. “While gold stocks have reacted to changes in gold prices, the extent of that reaction has worsened over time,” he said, adding that the risks and costs of gold mining could put pressure on miners. George Milling-Stanley, chief gold strategist at State Street Global Advisors, which runs the SPDR Gold Shares ETF, which holds physical gold, agreed. “One of the reasons I own gold bullion is that I believe it can provide me with some protection against potential weakness in the stock market,” he told CNBC earlier this year. “When the stock market falls, gold mining stocks remember that they are stocks, and they tend to fall with the overall level of the stock market. So they don't provide me with additional protection.” Risks Despite gold's reputation as a safe haven, Investing in gold is not without risk. Prices can fluctuate in response to breaking news, while dynamics in the physical market (such as supply and demand) also come into play. Investors should also consider whether other investments may provide higher long-term returns. For example, gold has returned 10.59% over the past five years, while the S&P 500 stock market index has returned 15.05%, according to Morningstar Direct. That's “well above” the long-term average, Morningstar's Arnott said. Over the past 50 years, gold has returned 5.72%, while the S&P 500 has returned 11.75%. Another problem with physical gold is that, unlike many other asset classes such as stocks and bonds, it does not provide interest or dividends. Asked whether investing in gold was worth it, Barr said it was a “difficult” question but acknowledged: “If we keep it simple, I think the answer has to be 'yes.' “(If) you're slightly risk-averse, Or… as bearish as we are on gold, we still recommend that people hold a little bit of gold in their portfolios because it provides some extreme scenario protection,” Price added. “After the war is settled… gold is still a good place to be.” Transform your portfolio with expert analyst ratings! Click here to join CNBC Pro.
Gold Investments Ltd. Gold bullion trader's selection of gold bars and one ounce coins in London, UK on Tuesday, May 21, 2024.
Chris Ratcliffe | Bloomberg | Getty Images
Gold has been coveted for thousands of years, its beauty, versatility and reputation as a safe haven irresistible. From gold bars to mining stocks and ETFs, there are many ways to get involved.
But has gold historically been a good investment? CNBC Pro explores the pros and cons of investing in gold, where you can put your money and the potential risks involved.