For centuries, gold has been seen as a safe haven and a store of value. Why should modern times be any different? Today, investing in gold is easier than ever, thanks to exchange-traded funds (ETFs). If your clients are clamoring for some exposure in their portfolios, read up on the ins and outs of this unique asset class.
Gold has long been used as a hedge against political and economic uncertainties, and central banks around the world back their currency with gold reserves. Gold is the metal that is seen as a “safe haven” in times of world turmoil, prompting some investors to buy gold bars, which always will have some value. Gold is also used widely in industry, including computers and telecommunications.
Some investors will simply never be comfortable with owning gold they can’t see and, for them, taking physical possession makes the most sense. But if your clients simply want exposure, consider the benefits of owning gold ETFs.
What’s great about gold is that it tends to have a low correlation to other asset classes, which means that it is a great diversifier. Historically, gold is negatively correlated to stocks and other financial instruments. In utilizing the proper combination of gold with other assets, an investor may reduce the overall volatility and risk of his or her portfolio.
Why would you own a gold ETF instead of actual gold? Simply put, it’s more convenient.
Owning a gold-focused ETF is a good way to get physical exposure to gold without the hassle of taking physical possession—finding storage, paying for storage and so on. Each share of a physically-backed gold ETF is just that: backed by a piece of gold.
This gold is stored in secure vaults in London and Switzerland, and the holdings within are audited and inspected on a regular basis. Some investors aren’t comfortable with this—some will simply never be comfortable with owning gold they can’t see. If your clients are like this, gold ETFs may not be the right choice for them.