Gold should be used mainly as a hedge as opposed to a primary asset class
By Julie Cazzin with Andrew Dobson
Q: Is it wise to invest some savings in gold? If so, what’s a good gold exchange-traded fund (ETF), and what percentage of my holdings should be invested there? I’m 50 years old, so how do I know which gold ETF is right for me? — Mary
FP Answers: Gold is a precious metal that has been a form of currency since ancient civilizations. It was even considered the standard basis for the international money system until the past century. Prior to 1914, the Canadian dollar was fixed to the price of gold and convertible to gold on demand.
Today, gold as an investment takes many shapes and forms and there’s been a renewed interest among market participants as the price of spot, or one ounce of, gold bullion has been rising and hit an all-time high of US$2,135 on Dec. 4, 2023.
In your case, Mary, reviewing the rationale to invest in gold is important to determine whether it is a good fit for your portfolio. Given that gold is a single asset class, it is considered higher in risk due to the volatility inherent in tracking one asset versus a basket.
“The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you,” Warren Buffett famously once said of gold. “It is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”
Investors will sometimes include a small allocation to gold in their portfolios for risk diversification. The value of this allocation could be to provide some upside return potential for part of the portfolio when other parts are not performing.
The classic example you may hear is that “gold is inversely correlated to the stock market,” which means that when stock markets go down, we should expect gold to act differently by going up. Used this way in a small allocation, gold could help the investing experience in terms of buffering overall portfolio volatility.
Unfortunately, Mary, gold has garnered somewhat of a reputation for having very aggressive advocates — so-called gold bugs — pushing it as something to invest in as a primary asset class. I would caution against having a high allocation in your portfolio to any single investment, but specifically commodities, as they can be speculative and volatile. The same rule would apply to buying shares of a penny stock.
For example, the largest physically backed gold ETF in the world is SPDR Gold Trust, which tracks physical gold bullion prices. Canadian ETF issuers such as BlackRock Inc.’s iShares, Sprott Inc. and Purpose Investments Inc. also have gold bullion funds trading on the Toronto Stock Exchange. The iShares S&P/TSX Global Gold Index ETF provides global exposure to shares of gold producers, so you are buying gold stocks instead of gold bullion.
Keep in mind that if you invest in U.S.-listed gold ETFs, it may increase currency conversion costs, Canadian tax reporting requirements for taxable accounts or expose you to U.S. estate tax upon death.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
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