top of page

My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

Black on Transparent.png
  • Writer's picturetim@emorningcoffee.com

Revisiting gold as an asset class

Updated: Mar 6

If you have been following gold, you might know that the world's best-known and most-followed precious metal recently pierced the important $2,100/oz threshold, reaching a record high yesterday (and heading higher as I pen this).


Gold can be an important alternative asset in an investment portfolio, with the percentage you should own depending on your own personal circumstances. As you might recall from my recent year-end portfolio update, I had circa 2.4% of my portfolio invested in gold at the end of 2023. Gold is weakly correlated with many other asset classes, making it an ideal asset for diversification in an individual’s investment portfolio. Gold is also a proven store of value and a historical safe haven asset.


I have written about gold in the past in EMC in a rather dated article you can access here. More importantly, London-based BullionVault – the world’s largest online investment gold service – has kindly contributed towards a current article for EMC, providing some context and background for investors that own or are considering investing in gold. The article, focused on how you can play gold as an asset class, is published in its entirety below, and I hope you enjoy it.                 

 

The Ultimate Guide to Diversifying Your Portfolio with Gold 

We are all at different stages when it comes to our investment journeys and this can often impact our attitude towards risk, with those looking to retire naturally looking at a somewhat shorter horizon than those at the start of their careers. 

 

Diversification can come in many forms ranging from the types and number of companies that you invest in, the platforms that you use and the asset classes that you leverage, but one sometimes overlooked yet stable area that can have a big impact on your performance is gold investing. 

 

Here is a breakdown of the following topics to give a full understanding of the benefits of gold investing and how it can help you stabilise your portfolio and protect your wealth. 


  1. Understanding gold as an investment

  2. How to invest in gold (available platforms)

  3. Tailoring your allocation (risk profiles)

 

Used strategically, gold can have a positive impact on the stability of your investments, protecting you in turbulent markets without costing you in the good times. Keep reading to find out how to invest in gold as a retail investor. 


1.    Understanding gold as an investment

 

The fundamentals are simple, investing in gold differs slightly from other assets like stocks (which produce income over time in the form of dividends) and cash (which produces income in the form of interest). When it comes to gold you are benefiting from the capital gains increase which is a note worth considering from a tax perspective (more on than later). 

 

Gold has been viewed for decades as a good store of value, to hedge against inflation whilst also protecting your portfolio from bear market downturns. 

 

2.    How to invest in gold (available methods)

 

When it comes to gold investing there are various options available, and all come with their own drawbacks and benefits. One of the most popular ways of gaining exposure to gold is through buying physical bullion; this comes with benefits associated with proximity and tangibility, however there are safety considerations in addition to the fact that physical bullion in the form of coins and small bars are often bought with high premiums over spot price. 

 

Investing in gold mining companies on the stock market is another channel. This option allows investors to gain exposure to the gold market indirectly. The performance of gold stocks is influenced by operational efficiencies, exploration successes, and gold market prices, but they also carry the risks associated with stock investments. 

 

Gold mutual funds and exchange-traded funds (ETFs) that invest in a variety of gold-related assets. Gold funds can also offer more diversification than individual gold stocks. 

 

You can also invest through vaulted gold. This refers to gold investments where the physical gold is stored in professional vaults on behalf of the investor. Investors own the gold outright but avoid the hassle of personal storage and security. Through this method, you are able to invest in the larger gold bars through fractional purchases which also means you avoid the higher percentage premiums when investing in smaller bars and coins physically. 

 

3.     Tailoring your allocation (risk profiles)

 

Managing the allocation of gold within your portfolio will depend in part on your tolerance to risk and your relevant time horizons; if for example you are looking to maximise gains but also protect your investments from large drops having a smaller allocation of gold may prove useful, with the view to increasing over time to protect more of your wealth relative to the rest of your portfolio. 

 

This diversification tool from BullionVault helps visualise the impact that it may have.

 

Closing thoughts 

 

Gold is an asset well worth a look at when it comes to portfolio diversification and many view it as a form of ‘investment insurance’ that can protect you in the bad times without costing you too much in the good times. The following quote from BullionVault puts this into context, if you want to look at protecting your assets over time, it could be worth taking a look into gold. 

 

“The value of gold as investment insurance has been greater still for hedging UK assets over the last 40 and 20 years. Going 10% gold almost halved the losses of 2008 on a simple 60:40 portfolio of UK equities and government bonds. Going 25% gold reduced that risk still further.”

 

This content is for informational purposes only and should not be taken as financial advice. Always consult a professional before making any investment decisions. Remember that investing involves risks and is not suitable for everyone. Past performance is not indicative of future results. E-MorningCoffee.com is not endorsing or recommending this service from the perspective of an investment, and this article is not investment advice. 




 

 

 

 

Recent Posts

See All

Comments


bottom of page