INVESTING

Why experts expect the gold price to soar even higher

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Gold is known for being a dependable defensive play to safeguard your wealth when volatility is high and fair-weather assets are under threat. So it's no surprise that the spot price is soaring during this COVID-19 pandemic. But there's more to it than that.

Gold has long been a safe place to park wealth due to its finite supply and cultural allure, not to mention its history as a backer of traditional currency.

"Gold has notoriously been seen as a safe haven as it's backed by a physical asset and, since 1971, has produced cash-like returns," says Jessical Amir from Bell Direct.

buing gold

The spot price for gold has been on the up since early June, topping out at almost $US2000 an ounce.

Barry Dawes from Martin Place Securities attributes gold's run to several factors including supply shortages, increasing demand from Asia, and central bank activity.

"The market is very tight because the demand out of China and India out of the last few years has taken a lot of the gold from the west, and that's run down the inventory of key market players."

"In addition, central banks have been buying up gold, and production has been flat to declining over the last few years so there's no increase in supply."

Amir also points to geopolitical tensions, falling bond yields, and the upcoming US presidential elections as further tailwinds.

Both Amir and Dawes expect the gold price to push higher.

"COVID-19 cases are continuing to rise, unemployment is at record highs, economic support has been unprecedented and the US government is negotiating another support package," says Amir.

Investors can benefit not only from gold's price performance but also its use as a hedge to reduce the risk profile of your portfolio.

Gold is a great diversifier because it's negatively correlated with non-gold equities. When one goes up the other typically goes down, and vice versa.

"Gold typically has an inverse relationship with equities," notes Amir.

"Oxford Economics research found investors who had a 5% allocation of their investment portfolio to gold experienced reduced volatility and greater investment returns."

Investors can gain exposure to gold via direct orders from the mint or through positions in gold-related stocks.

Dawes recommends taking a "portfolio approach" to investing in gold-related shares.

"You need to have the leaders, because they're cheap. They're generating a lot of cash, they're paying dividends, and the dividends will likely rise from here."

Leaders here include names such as Newcrest (NCM), Northern Star Resources (NST), Evolution Mining (EVN), Regis Resources (RRL), Saracen Mineral Holdings (SAR).

Rather than buying individual shares through a broker, investors can also gain exposure using gold exchange traded funds (ETFs). Options include ETFs with ASX codes GOLD, PMGOLD and QAU.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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