What to do about your gold exposure

Investors Chronicle
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Investors ChronicleWritten by: Moira O’Neill

29/07/2015

The gold price has come under pressure again, falling below the psychological hurdle of $1,100 last week, the lowest level since March 2010.

ETF Securities reports the largest outflows in 19 weeks from physically-backed gold exchange traded commodities (ETCs).

The firm said market sentiment towards the yellow metal continues to wane as existing home sales reached an eight-and-a-half-year high and jobless claims reached an eight-and-a-half-year low in the US, increasing the probability of a rate hike and continued US dollar strength.

Earlier this month, China broke silence on its gold reserves, claiming that it holds much less than analysts thought.

Precious metal dealer Physical Gold reports that investors have been switching from gold to silver since the start of the year, partly because gold is down 8 per cent in sterling terms this year. Investors are therefore switching to lock in profits, cut losses or simply from the desire to diversify holdings because silver looks undervalued compared with gold.

Since the beginning of 2014, in sterling terms, gold has fallen 4.7 per cent

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while silver has plummeted 21.3 per cent in the same period, according to the firm.

Lee Goggin, co-founder of findawealthmanager.com, says: “It is worth going through your portfolio and picking out the assets with a high correlation to gold. Pay attention to mutual funds or structured products that deal with gold or gold-related companies as it’s easy for these to escape notice.

“If gold is part of your long-term strategy then the current situation is a short-term blip on the investment radar. Likewise, this is not an opportunity to start buying. In the face of a strengthening US dollar and mooted interest rate rises, it is unlikely that gold prices have yet bottomed out.

“As a general rule of thumb, the percentage of your portfolio in gold should be in single digits.”

Brian Dennehy, founder of fund research firm Fund Expert, said: “If you hold gold it’s worth asking why you bought it in the first place. It certainly wasn’t for the yield. So investors that got caught up in the euphoria and bought in near the top should consider cutting their losses.

“Investors keen on a punt may benefit from a bounce in the short term. If you bought with a very long timescale in mind, stay with it, providing it’s a small part of your portfolio. And you’re content with no return (capital or income) for some years to come.”

Daniel Fisher, director at Physical Gold, says: “For those who have held gold for several years, their holding still represents a healthy profit despite its price correction over the past two years.

“There’s the feeling that silver can perform well when global economies are good and bad as (unlike gold) it has so many industrial uses. So if the economic backdrop improves, demand should increase for technology that uses silver, pushing up prices in the metal. If investors feel that some economies are picking up while others flounder, owning both metals will cover all bases.”

Investors Chronicle’s preferred way to hold physical gold is via the Source Physical Gold P-ETC (SGLD). This aims to provide the performance of the spot gold price through certificates collateralised with gold bullion.

An easy way to get exposure to silver is via Source Physical Silver P-ETC (SSLV).

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