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Why Investing in Gold Bullion, Not Mining Stocks, Is Ultimate Safe Haven

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For Hindus in India and around the world, October is an important month, one of festivals and festivities that culminates with Diwali, the Festival of Lights.

Traditionally, Hindus have always purchased gold during important festivals. Gold is not only symbolic, it’s also been and still remains a major investment for most Indians. And as the Indian economy grows and income levels continue to rise, the sale of gold continues to increase, said Jerry Wagner, founder and president of Flexible Plan Investments and manager of its Gold Bullion Strategy Fund, which makes the case for investing in gold all the more compelling.

Gold, Wagner said, is the ultimate safe asset and in times of trouble, human beings always turn to gold. Now, with geopolitics in the headlines everyday, gold is even more attractive as a safe haven investment, but deriving the best benefit the asset class has to offer means investing in the right kind of gold fund.

“Most of the gold ETFs that are available on the market today are composed mainly of gold mining stocks, and therefore impacted by the production and earnings of those companies at any given time, as well as other factors, which means that in the long term, they are subject to more volatility,” Wagner said. And that, he said, defeats the purpose of investing in gold as a long-term, safe harbor asset.

Wagner started his Gold Bullion Strategy Fund, a no-load gold bullion fund, to allow mutual fund investors to participate directly in the gold bullion market. The fund tracks the changes in price of gold bullion and allows for a better way to avail of gold as a diversifier, Wagner said, to deal with bear markets and even weakness in the U.S. dollar, another asset class that investors flock to in times of trouble. Twenty five percent of the $70 million Gold Bullion Strategy Fund, which was launched just about a year ago, tracks gold bullion ETFs, while the remaining 75% is invested in short-term bond (corporate or government) ETFs.

“What we are looking for first is preservation of principal and then to pick up an income stream, which reduces the volatility of gold and also offsets the expense ratio of the fund,” Wagner said. “Through our fund, investors can participate every day in the price of gold bullion in a mutual fund structure and we use the yield generated by the bonds to pay for the fund expenses, so it becomes an ideal way for investors to own gold in their portfolios.”

Given the current global geopolitical uncertainties, the appeal of gold has once again increased, even if gold prices are low. In fact, studies have shown that whenever there’s flight to quality in times of crises, gold is the best performer, Wagner said. He also undertook a 40-year comparison study that showed that gold has only a 12% correlation to stocks, “so gold gives you the diversification when you really need it,” he said. “Finally, there’s a strong demand factor there from places like India, and China has been on a five-year program to continually increase its gold purchases, which means you have a continued demand for the metal that gives it a store of value that hard currency doesn’t have.”