By James Dunn
Recently, Switzer Daily brought together experts from ABC Bullion, Hunter Hall and ANZ ETFs to discuss the themes, challenges and opportunities around investing in gold. In the second part of the series, we explore how to invest in the metal.
With gold streaking this week to its highest price since March 2014 – and to a fresh record in A$ terms – many investors are starting to look at the yellow metal through fresh eyes.
And the good news is that it has never been more convenient to invest in gold, with three main kinds of vehicles catering to retail investment.
There is bullion itself, in a range of forms and weights, and in both ‘allocated’ (which is stored individually in the investor’s name) and ‘unallocated’ forms (where the bullion is stored in bulk, and each investor has the legal title to the amount of gold they have bought.)
The Australian Securities Exchange (ASX) hosts a range of vehicles that enable retail investors to buy gold in its own right, in both A$ and US$ denominations. These exchange-traded fund (ETF) gold products give investors exposure to gold bullion ownership, without having to hold and store the gold: the stocks simply track the gold price very closely, and may be bought and sold at any time on the ASX. There is normal brokerage on the purchase or sale, and the management expense ratio (MER) of the investment is as low as 40 basis points (0.40%) a year.
Then there are the gold stocks listed on the ASX: the likes of Newcrest Mining, Northern Star Resources, Regis Resources, Beadell Resources, Evolution Mining, St Barbara, Doray Minerals, Resolute Mining, Alkane Resources and Silver Lake Resources.
Jordan Eliseo, chief economist at precious metals bullion dealer, ABC Bullion, favours bullion as the means by which retail investors and self-managed super funds (SMSFs) should hold gold. The critical point with physical bullion, he says, is that in allocated form, it belongs to the investor, who can take physical delivery. The gold is stored in special-purpose bullion vaults, but notwithstanding this, bullion is highly liquid.
“Physical gold can be bought 24 hours a day either online or over the phone through a recognised bullion dealer, in line with the market for physical gold itself, which trades around the clock,” says Eliseo. The investor pays a premium (or buy/sell spread) to the bullion dealer (0.9% for allocated bullion), while storage is free for allocated bullion.
Kris Walesby, head of ANZ ETFS (a joint venture between ANZ Banking Group and London-based ETF Securities) says the beauty of the exchange-traded gold investments is the simplicity and easy access. “If you want gold, the first question is how to access it and what suits your situation,” he says. His firm’s gold ETF offers access to gold exposure, custody, insurance and liquidity in one product: the gold ETF is tied to physical gold bars stored at the bank's vault in Singapore.
Walesby says the main benefit of the ETF vehicle is that you can invest any amount you like, the management fee is low (0.4% a year) and investors simply pay normal brokerage in and out – which they can get quite cheaply if they use an online broker. “It’s a safe haven, but it’s liquid,” he says.
With both bullion and gold ETFs, the investor is steering clear of any company-specific factors like mine life, resource security or hedging activity that can bedevil investing in gold stocks – but those very factors are what Peter Hall, founder and chief investment officer of funds management firm Hunter Hall, looks for.
“Our business is getting to know stocks very well, and when you do that, you can recognise that the gold miners’ share prices can actually be very cheap at times,” he says.
For an investor who believes that the gold price is going to rise, says Hall, the gold miners are a very leveraged way to participate in that. “A good example is St Barbara Limited (SBM). Gold is selling for A$1700–A$1800 an ounce, and right now you can buy St Barbara’s reserves, in the ground, for about A$468 an ounce. So roughly, you're getting about four times the leverage to the price rise by buying the gold share.”
While he is “not particularly recommending St Barbara, or any other gold producer,” Hall says the point is that there is a lot more leverage in the gold shares if you believe the gold price is going to go up. “But similarly, if the gold price goes down, if we get it wrong, then the gold shares will fall quite hard,” he adds.
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