Gold is a unique commodity, a physical asset that is accumulated rather than consumed. As it is practically indestructible, virtually all the gold that has ever been mined still exists today. During periods of uncertainty and crisis, gold has often been used by investors as a ‘safe haven’ asset.
It has traditionally been viewed as a store of value due to its restricted supply, in contrast to paper money, for example, which governments can issue at will. Because of this, gold tends to maintain or increase its purchasing power over time, and has therefore been used to protect against the risk of inflation.
Gold historically has also shown low correlation to shares, fixed income, and most other commodities, so an allocation to gold can be a good diversifier as part of a broader investment portfolio.
What is a gold ETF?
Exchange-Traded Funds (ETFs) are investment funds that can be bought and sold on a stock exchange just like shares.
You can use ETFs to get exposure to gold by investing in:
- A gold ETF that aims to track the price of physical gold.
- An ETF that holds a portfolio of companies that are involved in the mining or production of gold.
When you invest in a gold ETF, you do not own any physical gold – although a fund such as the BetaShares Gold Bullion ETF – Currency Hedged (ASX: QAU) is backed by gold bullion held in a London vault of JP Morgan Chase. When you sell your gold ETF you will receive the gold’s cash equivalent.
Why invest in a gold ETF?
An allocation to gold can help diversify your investment portfolio, as gold historically has shown a low correlation to other major asset classes. Gold tends to be less affected than some other asset classes by rising inflation, political uncertainty, and other negative macroeconomic trends.
When it comes to investing in gold, it is rare to buy physical gold itself. One of the most popular ways to invest in gold is through buying a gold ETF.
A gold ETF gives you exposure to the precious metal without the costs and inconvenience of buying and storing physical gold. The liquidity, transparency and low costs of ETFs have made them an attractive way of adding gold to an investment portfolio.
Here are five reasons to consider adding gold to your investment portfolio:
- Diversification: Gold can be an important part of a diversified portfolio, because its price historically has tended to increase when the value of stocks and bonds decreases. In the short term, the price of gold can be volatile, but over the long term it tends to be seen as a ‘safe haven’.
- Inflation hedge: As a result of inflation, the real value of cash declines over the long term, unlike the value of gold, which tends to maintain its purchasing power.
- Increasing demand: As populations increase, so too does the demand for gold. This is especially apparent when gold is an important part of the culture of a population, such as in India or China. Gold is used not only in fine jewellery, but also in electronics (such as smartphones, circuit boards etc.).
- Limited supply: There is a finite amount of gold in the world, and not all gold can be mined economically. Annual demand requires more gold than is newly mined, with the shortfall made up from recycling, mostly from jewellery¹.
- Tangible: Gold is a tangible asset, which creates a perception of safety among investors. It cannot be hacked, unlike digital assets, and its composition means it is extremely hard to counterfeit.
Invest in a gold ETF on the ASX
There are two main types of gold ETFs:
- ETFs that aim to track the price of physical gold
- ETFs that offer exposure to gold miners ad producers.
BetaShares Gold ETFs
|QAU||The BetaShares Gold Bullion ETF - Currency Hedged - Aims to track the price of physical gold, with a currency hedge against movements in the AUD/USD exchange rate. The fund is backed by gold bullion held in a London vault of JP Morgan Chase.||Download|
|MNRS||The BetaShares Global Gold Miners ETF - Currency Hedged - Aims to track the performance of a portfolio of the largest global gold mining companies (excluding companies listed in Australia), hedged for foreign currency exposure.||Download|
Investing involves risk. The value of an investment and income distributions can go down as well as up. Before making an investment decision you should consider the relevant product disclosure statement (available at www.betashares.com.au) and your particular circumstances, including your tolerance for risk, and obtain financial advice. An investment in any BetaShares Fund should only be considered as a component of a broader portfolio.