Gold investment funds
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Benefits with investing in gold
Key takeaways:
- Gold has both industrial and monetary properties
- Gold is an indispensable metal in new technology
- Gold is considered to be a safe haven investment in uncertain times
- Gold acts as protection against inflation
- Gold in physical form can be a good investment; however, it requires both safe storage and handling
Invest in gold through funds
The price of gold tends to rise during uncertain times. Investing in gold can be done in various ways, for example, by buying shares in companies that produce the metal. With AuAg Funds, you can invest in gold by buying funds that give exposure to the mining companies that extract gold or choose a combination of green technology and physical gold. That way, you get a risk-adjusted portfolio ー which is designed to perform in all market cycles. With us, you can make a gold investment via the products AuAg Gold Mining and AuAg Precious Green.
AuAg Gold Mining
The AuAg Gold Mining is composed of gold mining companies and is designed to outperform peers in a rising gold market. The fund consists of 25 equally weighted companies, each with a weight of 4%, giving more allocation to medium-sized mining companies. This in turn provides a higher return potential. The gold mining fund also has an active ESG screening and thus invests in the 25 companies that produce gold most sustainably.
Green gold
Gold is an indispensable metal in the manufacturing of new technology and for a sound financial system. However, metal extraction has an impact on our environment.
AuAg has therefore chosen to primarily invest in gold mining companies with a good ESG risk rating (Environmental, Social and Governance). Hence, we reward those who are best-in-class, we promote the companies that work to become more sustainable, and we exclude the companies whose sustainability work lags behind.
AuAg Precious Green
60% of AuAg Precious Green is composed of companies that create products for green technology (e.g. solar cells and batteries) and mining companies that extract copper, lithium and rare earth metals. The remaining 40% is allocated to physical precious metals with a focus on gold.
Why invest in gold?
A gold investment should be part of every portfolio. Gold's low correlation with the broad stock market contributes to a higher risk-adjusted return in a portfolio that largely consists of stocks and interest rates. Historically, gold has also functioned as an effective portfolio hedge, both against uncertainty/volatility in the market as well as inflation. For an investor who wants to diversify and protect his portfolio against inflation, gold is thus an interesting asset to invest in. Investing in gold provides exposure to a value-preserving asset that historically has performed well in times of high monetary inflation and financial market turmoil.
Why invest in gold mining companies?
If you invest in gold mining companies, you will have leveraged exposure to gold. The mining companies tend to rise more when the price of gold goes up, and vice versa. Investors can get exposure to gold by buying these stocks since the share price of mining companies is dependent on the price of gold. A gold investment in mining companies also generates dividends, unlike buying gold bars or jewelry.
Low correlation between gold and other assets
The correlation coefficient is a statistical measure used to describe the linear relationship between two assets. And the low correlation between gold and other assets is arguably its biggest strength.
A low correlation (close to 0 correlation) between gold and another asset means they move completely independently. If they have a +1 correlation, they move in the same direction. When constructing an investment portfolio, you ideally want assets with a correlation as close to 0 as possible. But the range from -0,3 to +0,3 does the job well in practice. A portfolio consisting of assets with a low correlation results in that you have parts in the portfolio that perform independently of each other, which gives you a higher risk-adjusted return.
Gold can do well when the stock market goes down and vice versa. But both can also go up and down at the same time since they have a correlation close to 0. On the opposite end of the spectrum, if something is negatively correlated, it moves in the opposite direction. Correlation -1 means that there is a completely inverse relationship between the performance of the assets, and then you get no return at all (but still pay fees).
In conclusion: You want multiple assets in a portfolio with a correlation as close to 0 as possible, and gold’s low correlation with other assets is why it is such a good building block in a portfolio.
How and where is gold used?
An average person holds approximately one ounce of gold. Gold is used for exclusive jewelry, but is also an important component in almost all technology that we use since the metal conducts electricity efficiently and resists corrosion.
For example, gold is used for:
- computers
- communication equipment
- cars
- space technology
- jet engines
- medical technology.
Is gold a good investment?
Investing in gold is considered to be a value-preserving and inflation-protecting investment. The price of gold tends to rise in times of high inflation and a declining dollar. Gold also has a low long-term correlation with the stock market. Investing in gold contributes to risk diversification in a traditional portfolio consisting of stocks and bonds. The price of gold also tends to rise during times of market turmoil, making it an effective portfolio hedge in a turbulent market. Saving in gold has been very profitable for the last hundred years. Historical returns are no guarantee of future returns ー by investing in both gold and gold miners, an investor can get both strong portfolio protection and the possibility to generate a return.
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When should you invest in gold?
According to the independent global research company, Oxford Economics, gold should always be part of a portfolio, but how much of the holding depends on the market climate. In uncertain times, people tend to save in gold, and during periods of high growth, investors tend to choose stocks instead. You can choose to rebalance your portfolio yourself or invest in gold investment funds to let an expert invest in gold for you.
The price of gold can be measured in different currencies
Gold is priced in USD by default. This makes it important for an investor to understand price changes in USD in relation to the currency the investor is trading in.
For an investor, it is important to always relate to the currency you're trading in. For example, if you buy and sell in euros, the dollar exchange rate will not affect your trade.
To learn more about the impact of currencies when investing in gold, you can click on the button below. There, we go through how it works in more detail and make a calculation example.
How can you invest in gold?
Gold plays an important role in a portfolio. This makes it beneficial for most investors to have a gold investment plan in their portfolio strategy. There are different ways to buy gold as an investment:
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Physical gold: You can buy the physical commodity and store it at home, or in another safe place.
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ETCs (Exchange Traded Commodities): By buying an ETC, you own physical gold and pay a fee so that you do not have to manage the storage yourself.
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Derivatives: Investment products that follow the price of gold, but where you have a counterparty risk against the issuer of the product.
- Shares: The share price of mining companies that extract gold is strongly linked to the spot price of gold. Mining stocks often move more than the price of the underlying asset because you also add a corporate risk. This means that the share goes up more when e.g. the price of gold goes up, and vice versa.
- Funds: There are different ways to invest in commodities as well as different types of gold investment funds. When you invest in a fund, you pay a fee for an expert (fund manager) to select underlying assets that provide exposure to gold. A fund may contain one of the options listed above. There are two types of funds: daily traded fund which is an actively managed fund, which means that an expert reviews the holdings and rebalances at regular intervals. Exchange-traded fund which is a basket of securities that follows an index and trades like a stock.
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Supply and demand
It is difficult to estimate how much gold has been mined throughout history, but according to the World Gold Council, it is about 205,238 tonnes. That figure can be compared to the primary production of aluminium in the United States, which reached almost 900,000 metric tons in 2021 and exceeded 2 million metric tons in 2012.
All mined gold can fit in a cube where each side is 22 meters long. The limited supply of gold means that the gold price stays at a stable, high level. The inflation of gold, from new extractions is estimated at around 1% per year.
Gold demand
Gold supply
What the future hold for gold
In recent decades, gold prices have skyrocketed during periods of market turbulence, for example, in 1980, 2008 and 2020. Therefore, there is reason to believe that gold will continue to increase in value if there are uncertain years ahead, and it may be a good idea to have a gold investment plan. Worries about global economic growth, fueled by continued inflation and higher geopolitical unrest, mean that gold will maintain, and likely increase, its value.
The fact that gold is used in jewellery and by industry is another factor that impacts demand and, consequently, the price of gold.
The price of gold also has an inverse relationship to the amount of money created by central banks. As long as this trend continues, we will also likely see an increase in the price of gold.
Historically, the price of gold has consistently increased, or rather, it has kept its value, while fiat currencies have lost theirs. Gold and gold investment funds have generated stable returns for long-term investors. Therefore, investing in physical gold and mining companies can be a good idea.
Protection against rising inflation
Over the past 61 years, inflation in the United States has gone up and down ー from 13.5% inflation in 1980 to a low of 0.5% in 2009. When inflation rises above 4% (May 2023) and is way above the Federal Reserve System’s target of 2%, many investors see how the value of their cash savings decreases. However, gold tends to be a good investment during periods of rising inflation, especially when combined with a weak dollar.
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Why invest in gold mining companies with AuAg funds?
- AuAg Funds offers funds that focus on providing exposure to precious metals and elements within green technology. What they have in common is that these assets offer protection against monetary inflation and are necessary in the transition to a green world – trends that are highly topical today.
- AuAg's funds invest in gold mining companies and fit well into a portfolio of traditional assets as they have low correlation with shares in particular.
- AuAg Funds offers both daily-traded and exchange-traded funds. What these have in common is that they focus on companies that extract gold and other precious metals.
- The AuAg Silver Bullet fund focuses on companies that mine silver – a metal that is in high demand due to its monetary properties as well as the properties that make it indispensable in our transition to a greener world.
- The fund AuAg Precious Green invests in physical gold, companies that extract important metals for the green transition, and companies that develop green technology.
- The gold mining fund AuAg Gold Mining offers exposure to an equally weighted basket of 25 ESG-screened companies active in the gold mining industry. The fund tracks the Solactive AuAg ESG Gold Mining Index which focuses on companies with low ESG risk.
- AuAg Gold Mining is available as a daily traded fund and as an exchange-traded fund. The exchange traded fund can be traded via international exchanges such as Deutsche Boerse Xetra, Euronext Paris, Six Swiss Exchange, Borsa Italiana and the London Stock Exchange.
How can gold be included in an investment strategy?
You can use gold in different ways in a portfolio depending on what type of investor you are. If you want to buy gold as an investment, you need to:
- Decide how much of the portfolio you want to be allocated, and then rebalance at regular intervals. If you are an active investor who likes to follow the market, you can weigh up and down your allocation depending on the market climate.
- Identify which fund or product you want to invest in.
- If you want to invest in a daily-traded or an exchange-traded fund (ETF), you can do so in the same place as where you buy stocks. Banks also offer trading with these funds. Gold funds are funds that invest directly or indirectly in gold.
- The easiest way to find a fund is to search for the its name, ticker, or ISIN code when you are logged in to the selected platform/trading location.
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Investing in physical gold
ETCs
For those who want to supplement their portfolio with a straight 1:1 exposure to gold, the cheapest and easiest way is to use ETPs (ETCs). These have allocated physical gold with no counterparty risk. An ETC is also constructed via an SPV whose assets are separate from the issuer's assets. Examples of some such products are:
- Xetra-Gold [4GLD]
- Wisdomtree Physical Swiss Gold [GZUR]
- Wisdomtree Physical Gold [VZLD]
- Amundi Physical Gold [GLDA]
- Xtrackers IE Physical Gold [XGDU]
- Invesco Physical Gold [8PSG]
- The Royal Mint Physical Gold [RM8U]
There are also, among others, Wisdomtree Gold Bullion Securities [GBS], BlackRock/iShares Physical Gold [IGLN] and all American ETFs. Compare current fees and spreads. Currency exchange fees and the platform's brokerage are also charged to the depository.
Gold is an interesting asset to invest in for an investor who wants to diversify and protect their portfolio against inflation. Investing in gold provides exposure to a value-preserving asset that has historically performed well in times of high monetary inflation and during uncertain periods in the financial markets. The long-term correlation between gold and the stock market is low, which makes the investment an interesting complement to a traditional portfolio consisting of stocks and bonds.
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