WHAT’S THE BEST WAY

TO INVEST IN GOLD?
Gold is often viewed as a ‘safe haven’. It’s a physical asset, not
easily created or destroyed, and is expected to keep track of
inflation over the long term.

Buying physical gold bars and coins can
be expensive and impractical – you’ve got
NICHOLAS HYETT to find a way to keep them safe after all.
Equity Analyst But there are other ways to invest in gold,
usually Exchange Traded Commodities
(ETCs) and gold mining shares.
WHAT’S HAPPENED TO THE
GOLD PRICE?
The price of gold has risen this year,
up 2.6% since January, from $1,280 a
troy ounce to $1,313. That’s still way
below the 2011 peak of around $1,900,
achieved in the aftermath of the
financial crisis.

IMPORTANT NOTES:
This factsheet is written for people who like to make their own investment decisions, it is not personal advice. If you have any doubts about
the suitability of an investment for your own circumstances please seek expert advice.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters.
These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value
so investors could make a loss.
This information is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or
price of any investment, and investors should form their own view on any proposed investment. This factsheet has not been prepared
in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing
communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put
controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by
such dealing. Please see our full non-independent research disclosure for more information.
All information is correct at 11/02/2019. This factsheet is issued by Hargreaves Lansdown Asset Management Ltd, One College Square
South, Anchor Road, Bristol, BS1 5HL who are authorised and regulated by the Financial Conduct Authority. March 2019
Clearly gold’s not a one way investment.
If you had bought at the peak, the value of
your shiny stuff would have fallen about
30%. And that’s before you count any
costs associated with holding it.
Nevertheless, gold can be used to
diversify a wider portfolio. Its value has
often risen when traditional investments
have fallen – although since it doesn’t
generate dividends or interest, it generally
hasn’t performed so well when interest
rates rise.
GOLD PRICE ($)
l Gold price ($)
$
2000
1800
INVESTING IN GOLD
Aside from buying physical gold, there are
two main ways of investing in gold, ETCs
and gold mining shares.
Exchange Traded Commodities (ETCs)
ETCs are listed and traded on a stock
exchange in the same way as shares.
They aim to track the price of a given
commodity, either by holding the
commodity directly or gaining exposure
via derivatives.
Physical gold ETCs – which actually hold
the metal itself – are among the easiest
and cheapest way for people to invest in
gold. They’re easy to buy and sell, and can
even be held in an ISA.
They’ve remained popular around the
world in 2018. Around 3.7m troy ounces
have been added to ETCs in the last 12
months despite gold’s roller-coaster ride.
There’s a wide range of gold ETCs
available. The largest physical gold ETC
on the London Stock Exchange is ETFS
Physical Gold ETC (PHGP), with a market
value close to $7bn. However, Source
Physical Gold ETC (SGLD) is a lower cost
option; with an annual management fee
of 0.29%.
Some ETCs use complex derivatives
to track the price of gold, rather than
holding the physical asset. While their
prices reflect movement in the metal over
the short term, their performance can
diverge over a longer time period. They’re
a higher risk way of tracking the price of
gold and should only be considered by
sophisticated investors. You can find out
how a given ETC tracks the price of gold by
looking at the ‘replication method’ on
our factsheet.

1600
MORE GOLD ETCs
1400

1200

1000

800
LEARN MORE ABOUT ETCs

600

400

200

0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Past performance isn’t a guide to the future. Source: Lipper IM, 11/02/19.
GOLD MINERS
Two factors set investing in a gold miners
apart from investing in ETCs – the
potential for gold price-beating returns,
and dividends.

As you’d expect, gold miners’ fortunes

are closely linked to the gold price. When
gold prices are high, miners can be highly
profitable, and can invest in new mines and
return cash to shareholders. When gold
prices are low, some miners will struggle.

Profits depend on the price of gold and

the quantity produced, but also the cost
of production. Currencies have a role too.
While gold is priced in dollars, mines can be
located anywhere on the planet, with costs
incurred in often volatile local currencies.

There are a lot of moving parts, meaning

profits are often volatile.
The chart below compares the
performance of Randgold, formerly the
Nonetheless, the ability to reduce costs
UK’s largest gold miner, but which recently
and increase output means a well-
merged with US listed Barrick Gold, with
BUY SHARES
managed gold miner with high quality
both the price of gold and the FTSE Gold AND ETCS IN
assets can deliver good returns even
when the gold price is flat.
Miners Index (a global gold mining index). 3 SIMPLE STEPS
Ready to invest?
Randgold, and now Barrick, has high
quality assets, and is able to produce at The good news is that it’s much
This helps to explain why some gold
a relatively low cost of $586 per ounce. easier than you might think.
miners have put in strong performances
Going forwards Barrick is expected to
despite the overall global gold mining If you don’t have a dealing account,
pay investors a steady, albeit small,
sector underperforming the gold price you could open one online today
dividend, with a prospective yield this
since 2011. Past performance is not a in minutes.
year of 1% (variable and not an indicator
guide to the future. Then:
of future income).
1. Log into your account
2. Select the share or ETC you
want to buy
3. Get a live price and buy,
or set a limit
Find out more about our share
GOLD PRICE, FTSE GOLD MINES AND RANDGOLD/BARRICK
dealing service (including
l Gold price (USD) l FTSE Gold Mines l Randgold/Barrick Resources charges)
250

200

150

100

50

-50

-100
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Past performance isn’t a guide to the future. Source: Lipper IM, 11/02/19.
Other major gold miners on the London
Stock Exchange have more mixed track
records. Of the three FTSE 250 specialist
goldminers, two (Polymetal and Centmin)
have outperformed the gold price while
Acacia has done significantly worse.
These ‘more variable’ returns can spring
up even when the gold price is rising.
For example, shares in Acacia Mining
tumbled in early 2017 after the Tanzanian
government banned exports of mineral
concentrates, preventing the group
selling output from its major mines. With
assets in Egypt and Russia, Centamin
and Polymetal are hardly immune to
geopolitical risk themselves.
Given the unpredictably of the sector,
it could be sensible to consider a more
diversified fund of gold miners, like
BlackRock’s Gold & General Fund.
It mainly invests in large and medium-sized
gold mining companies and is managed
by an experienced and well-resourced
team. We think it’s a reasonable choice for
exposure to this specialist area.
FIND OUT MORE ABOUT
BLACKROCK GOLD
& GENERAL FUND
Our top tips
Investing in gold certainly isn’t for
everyone, and should usually only
make up small portion of a wider
investment portfolio.
The easiest way to invest is through an
ETC. We prefer physical ETCs since they’re
more likely to accurately track the gold
price, and they’re lower risk than more
complex options.
LEARN MORE ABOUT ETCS
Mining shares are also an option for
more adventurous investors, but they
carry extra risks as they can over or
underperform movements in the gold
price. A gold fund can help minimise
some of those risks.
0319