Exploring gold’s recent trends and investment vehicles 

Gold experienced a remarkable rally, with its price surging from $1,900 to $2,650 over the past year. This impressive increase highlights gold’s position as a stable and reliable store of value. Despite its reputation for stability, this significant price appreciation demonstrates gold’s potential for substantial returns, especially in times of economic uncertainty and market volatility. Investors have flocked to gold, seeking a safe haven amid geopolitical tensions, fluctuating interest rates, and rising global debt levels. This surge in demand underscores the enduring status of gold as a hedge against inflation and a safeguard for wealth preservation. 

Source: IBKR TWS. Past performance is not indicative of future results.

There are a few reasons which explain this increase: 

• Geopolitical Conflicts: Ongoing tensions, particularly between major powers like China and the US, create uncertainty in global markets. Investors may turn to gold as a safe-haven asset during such times. 

• China and US Rivalry: The economic and political rivalry between China and the US has intensified, leading to market volatility. This rivalry encourages investors to seek stability in gold. 

• Central Bank Purchases: Many central banks around the world have been increasing their gold reserves. This trend supports higher gold prices as demand rises from these significant buyers. 

• Decrease in Global Inflation and Interest Rates: Lower inflation and interest rates reduce the opportunity cost of holding non-yielding assets like gold.

• Increase in Global Debt: Rising global debt levels can lead to concerns about the stability of financial systems. In such scenarios, gold is often viewed as a hedge against potential economic instability. 

Here are some instruments you can use to gain exposure to gold: 

• Physical Gold: This is the most straightforward way to get direct exposure to the asset. Physical gold can be more difficult to access and comes with higher costs for transfer and storage. 

• Derivatives: A derivative contract with gold as the underlying asset offers higher leverage and flexibility. The margin requirement is lower, offering the opportunity to trade a higher amount and adjust the portfolio to specific needs. However, due to the potential for higher leverage, this method can be riskier. 

• Listed Physical Gold: This method combines the advantages of physical gold and derivatives, offering lower costs of transfer and storage while remaining accessible.  

• Miners and Other Related Companies: This is an indirect way to gain exposure to gold. The premise is that there may be a correlation between a gold miner’s stock and the price of gold. However, company-specific factors can cause significant disparities in performance, making thorough evaluation necessary. 

• ETCs and ETFs: These funds offer access to a variety of gold-related assets. For instance, some ETCs hold physical gold in their portfolios, while various ETFs provide exposure to gold prices through futures contracts, mining stocks, or other gold-related investments. 

Investing in gold, like everything, has its detractors: 

Unlike other assets such as stocks, bonds or real estate, gold does not generate cash flows. This means that the only source of performance is price appreciation. This makes it less attractive for some investors as well as harder to value, in that the present value of all future cash flow formula cannot be applied.  

Gold’s recent rally prompts investors to consider its future potential. While the outlook remains uncertain, various instruments such as physical gold, gold derivatives, listed physical gold, companies in the gold sector, or ETFs, offer diverse ways to gain exposure to gold’s potential gains. Of course, each of these have their own unique benefits and risks.