The last two months of market volatility saw investors scramble to safe havens like bonds, but also gold. While uncertainty from U.S.-China trade wars, inverted yield curves and slowing global growth may cause investors to pile into gold, some analysts warn that exposure should not exceed 5% of one’s portfolio.
“Yes, gold has been moving up and from US$ 1,340 onwards, we have been suggesting exposure of not more than 5 percent of the portfolio to gold,” said Dr. Joseph Thomas, Head of Research, Emkay Wealth Management.
The movement of money into gold and its subsequent run-up in price was something seen during the financial crisis over a decade ago.
“The current move in gold has the potential to go back to the highs seen last time during the 2006-07 recession,” added Dr. Thomas. “What is actually giving gold the edge is the relative strength of the US dollar, the fears of a global slowdown, the probability of lower US interest rates, and the continuing trade and tariff war between China and the US, etc.”
However, loading up on what seems like a good thing now could translate to a bad thing later. As such, Dr. Joseph recommends the 5% allocation to gold.
“But, the exposure of portfolios to gold should be delimited to a small percentage of the total exposure and not more,” added Dr. Thomas. “Once economic growth starts picking up, gold will gradually start losing the sheen.”
For many investors, gold is the standard in precious metal investing, which has become more accessible than ever thanks to options via an exchange-traded fund (ETF) wrapper like the SPDR Gold MiniShares (NYSEArca: GLDM).
By investing in a gold ETF like GLDM versus actual gold, investors can also reap the benefits of an ETF like its tax efficiency.
Gold ETFs can be bought and sold freely via an exchange when compared to physical gold. As such, investors can utilize the hedging properties of gold without having to endure the costs of actually owning and storing the asset like they would with physical gold.
For GLDM investors specifically, the ETF offers the following benefits:
- The investment objective of SPDR® Gold MiniShares Trust (GLDM) is for the Shares of GLDM to reflect the performance of the price of gold bullion, less GLDM’s expenses
- Shares of GLDM are designed for investors who want a cost-effective and convenient way to invest in gold and will be offered on a continuous basis
- For many investors, costs associated with buying and selling the Shares in the secondary market and the payment of GLDM’s ongoing expenses will be lower than the costs associated with buying and selling gold bullion and storing and insuring gold bullion in a traditional allocated gold bullion account
Per GLDM’s latest factsheet, net assets exceed over $600 million–a remarkable feat given that the inception date of the fund was less than a year ago–June 25, 2018.
For more market trends, visit ETF Trends.