How does owning £GLN work in comparison to owning physical gold?
Are you betting against the price of Gold instead of owning it physically?
Also, I’ve been reading Gold is a good asset to own during financial crashes.
You want to own productive businesses, I would rather own a business than a lump of metal, hoping the next guy will pay more for it. A good business will outperform gold, that is why the right stocks are a better investment than gold in the long run.
What you are talking about is an ETF which tracks the price of gold, this may be done using futures contracts. You don’t own the gold, but legally the contract means you get the price of the futures contract when selling or buying.
It’s a market tracker so tracks the price of the commodity. Similar to how an ETF tracks the share price of companies
13 posts were split to a new topic: Should I diversify my portfolio?
So as you are investing in the proce of Gold, rather than actually buying Gold, if the price of goes increases, your investment is worth more?
Is this the same with GBP as well?
Yes, it tracks gold using futures contracts. I assume the ETF is in £, so no fx risk.
Unfortunately you’ve had some innacurate replies so far. Some of the real answers can be found in the KID for this ETC. It’s not an ETF.
Consider BlackRock’s iShares Gold Trust (IAU). A trust is a type of ETF that buys physical gold in exchange for shares issued. The buyer of the ETF, therefore, owns a fractional piece of the gold held in trust.
In the case of BlackRock’s iShares Physical Gold ETC (SGLN), investors don’t own piece of the gold they are investing in. Rather, the underwriters of the fund financially back the note (the ETC) with the holdings. The structures are similar, but not the same.
So investing in the thing available on Freetrade is sort of like buying a loan note, and the loan is backed by physical gold.
As for if investing in gold would help during a financial crisis… it might, or it might not.
Take a look at the second graph here and play around with the date slider, or click ‘10y’ as an example. Do you see an obvious (negative) correlation between stock market dips and gold prices?
Maybe gold can still provide some stability to a volatile stocks portfolio. But you pay for this possible safety with reduced returns.
I’m not sure you’ve had direct answers to your questions, so I’ll have a go:
Its basically the same as owning Physical Gold, without the hassle of having to store it. Whilst this answer is quite basic, its more than enough for your average investor.
You’re betting that the price will rise by buying it
There has been a financial crisis of one to support this theory so I would be cautious of relying on that alone. In the run up to the financial crisis there was a large period of low supply, this may or may not be linked to the price rise. Historically Gold has been used to protect against inflation.
Gold is the traditional store of value - all FIAT currencies so far have been eventually inflated to zero. As one of my gold bug friends says ‘an ounce of gold bought you a nice toga in Roman times and will buy you a nice suit now’. So in terms of human effort, it has kept its value.
What about 1 share of Apple bought in 1980.
What about 1 share of Enron in 1990?
I get the point you’re making, I dont mean to be facetious - but I think its more appropriate to compare apples with other types of apples.
Or even 1 share of all the companies of the S&P 500. Under no circumstances should anyone own gold, unless they are trying to flee with their net worth to another nation.
I think this is a little shortsighted. I understand your underlying point and in fact I agree with it - Equities are typically the best asset class when it comes to building wealth over the long term. But I can think of a few scenarios where gold makes perfect sense - periods of high inflation, periods of deflation & when government default is a real threat. One must consider Stagflation too.
Over the past 15 years investors have been blessed with low inflation, low interest rates & high unemployment. Economically, that is not sustainable. US & UK inflation rates have both been north of 10% - I’m willing to bet your opinion would change in this scenario.
Again I agree with your underlying point but I think its a little unfair to be so absolutist about these things - Gold is a great way of protecting wealth and people do have a need for protecting wealth.
I’d still take a business over gold 99% of the time, even with high levels of inflation. Gold is only good at protecting wealth from inflation, it is not good at generating earnings. Gold has no ability to earn money, which a business can.
The only time I wouldn’t take a business is a severe economic depression, where gold will perform better.
For what its worth Gold returns rival that of the FTSE 100 during my lifetime:
Admittedly & understandably they get crushed by the S&P
However if we look at the same chart since late 2003:
I don’t think it is appropriate to compare Gold purely to FTSE 100’s plain performance without accounting for circa 4% dividend yield being reinvested. That way, Gold will be the worse choice overall, but a fine mean of diversification of your asset classes.
Doesn’t include dividend reinvestment, if it did, gold would be destroyed.
Look for S&P 500 Total Return Index and FTSE 100 Total Return Index
I wouldn’t even call it 4%, dividends grow with time. You are reinvesting a growing dividend, which is compounding as well. FTSE 100 total return will beat gold, FTSE 250 total return will destroy gold.