Originally published at: https://blog.investengine.com/gold-a-precious-commodity-for-todays-investors/
Investment risks: For complete information on risks, refer to the legal documents. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Gold is one of the precious few assets that has truly stood the test of time. The yellow metal has been used by people across civilisations for thousands of years, whether as a payment for goods and services, as a symbol of wealth and fortune, or simply because it looks beautiful when fabricated into jewellery. More recently, gold has taken on a potentially more valuable role, as an investment to meet the needs of individuals and huge institutions alike.
Why invest in gold
Investors who hold a portfolio of equities and bonds can look at gold as a diversification tool. The price of gold tends to behave independently from most other asset classes, which is an enviable characteristic when it comes to diversification. You don’t want all your holdings to move in the same direction at the same time, especially when markets are falling! Gold tends to be more sought-after when equity markets are at historically high levels, and investors are looking for a possible cushion in the event of a market downturn.
Figure 1 shows the correlation between various asset classes – in other words, how the price of one asset would be expected to move given an increase in another asset. A correlation of 1 would suggest the two assets tend to move perfectly in sync with one another, whereas a correlation of 0 would suggest there is no linear relationship between the two assets. In other words, the lower the correlation, the more useful the asset could be from a diversification perspective.
Gold has low correlation to key asset classes
| Gold | Commodities | World equities | US equities | Emerging market equities | Global bonds | US Treasuries | |
| Gold | 1 | ||||||
| Commodities | 0.32 | 1 | |||||
| World equities | 0.12 | 0.42 | 1 | ||||
| US equities | 0.02 | 0.31 | 0.91 | 1 | |||
| Emerging market equities | 0.2 | 0.41 | 0.67 | 0.45 | 1 | ||
| Global bonds | 0.42 | 0.15 | 0.12 | -0.03 | 0.13 | 1 | |
| US Treasuries | 0.12 | -0.16 | -0.27 | -0.28 | -0.2 | 0.59 | 1 |
Gold also offers compelling hedging qualities. It’s often perceived as a “safe haven” asset, although investors should not mistake this for safety. The price of gold can rise as well as fall and, like most other investments, you may not get back the full amount invested.
Demand for gold often increases during times of political or economic uncertainty, or when conditions are volatile. We have seen plenty of evidence in recent years, including at the start of the pandemic, when Russia invaded Ukraine, and when Hamas attacked Israel.
Major events and the impact on gold over the past 20 years
Gold is also sought-after when interest rates are low, and bond yields are unattractive. Gold does not pay an income to anyone invested in it, but this becomes less of an issue when assets such as government bonds offer a relatively low yield. The opportunity cost of holding a non-income-paying asset is greatly reduced when interest rates are being cut, as has been the case in the UK, Europe and the US since the summer of 2024. Demand for gold-backed investment vehicles has grown during this time.
How to invest in gold
Investors wanting to gain exposure to gold may want to consider physical gold exchange-traded commodities (ETCs). These products have become popular investment vehicles as they remove from the investor the administrative burden of having to buy, store and insure gold bars.
The proceeds of your investment in a physical gold ETC would be used to purchase an equivalent amount of gold bars, which are then held in safe custody in a bank vault in an account designated for the ETC. The value of your holding would be based on the spot gold price, less the fee associated with managing the ETC. For example, the Invesco Physical Gold ETC has a fixed annual charge of 0.12%.
Conclusion
While gold has been used by people for various reasons throughout history, it could serve a different purpose for investors. For instance, you may want to consider adding gold to your portfolio if you are interested in diversifying your holdings, are concerned about an equity market downturn or some unexpected event that causes volatility. The attraction of gold as an investment is often strongest when interest rates and government bond yields are low, or falling, which may be the case in 2025.
Investment Risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Exposure to commodities might result in the Fund being more impacted by natural disasters and tariffs or other regulatory developments. This may result in large fluctuations in the value of the Fund.
If the issuer cannot pay the specified return, the proceeds from the sale of the precious metal will be used to repay investors. Investors will have no claim on the other assets of the issuer.
Important Information
Data as at 1 November 2024, unless otherwise stated.
If investors are unsure if this product is suitable for them, they should seek advice from a financial adviser.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment / investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change. All investment decisions must be based only on the most up-to-date legal offering documents. The legal offering documents (Key Information Document (KID), Base Prospectus and financial statements) are available free of charge at our website www.invesco.eu and from the issuers.
LBMA Gold Price is a trademark of Precious Metals Prices Limited, is licensed to ICE BENCHMARK ADMINISTRATION LIMITED (IBA) as the administrator of the LBMA Gold Price, and is used by Invesco with permission under licence by IBA. The full version of the IBA disclaimer is available at etf.invesco.com (select your country and navigate to the Documents section on the product page).
Issued by Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
EMEA4027427/2024
