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Investing in Gold and Gold Mining Funds
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Key takeaways:
- Gold has both industrial and monetary attributes.
- Gold is an indispensable metal in new technology.
- Gold is considered to be a safe haven investment in uncertain times.
- Gold acts as protection against inflation.
- Gold in physical form can be a good investment; however, it requires both safe storage and handling.
Invest in gold with AuAg today
Gold is an indispensable metal in our monetary system and when making new technology. The price of gold tends to rise during times of uncertainty. Investing in gold can be done in various ways, for example, by buying physical gold, or shares in mining companies.
With AuAg Funds, you can invest in gold by buying funds that give exposure to the mining companies that extract gold or choose a combination of green technology and physical gold. That way, you get a risk-adjusted portfolio ー which is designed to perform in all market cycles. Through us, you can make a gold investment via the funds AuAg Gold Rush and AuAg Precious Green.
AuAg Gold Rush
The AuAg Gold Rush is composed of gold mining companies and is designed to outperform rival funds in a rising gold market. The fund consists of 25 equally weighted companies, each with a weight of 4%, giving more allocation to medium-sized mining companies. This in turn provides a higher return potential. The gold mining fund also has an active ESG screening and thus invests in the 25 companies that produce gold most sustainably.
AuAg Precious Green
60% of AuAg Precious Green is composed of companies that create products for green technology (e.g. solar cells and batteries) and mining companies that extract copper, lithium and rare earth metals. The remaining 40% is allocated to physical precious metals with a focus on gold through Exchange-Traded Commodities (ETCs).
Why invest in gold?
A gold investment should be part of every portfolio. Gold's low correlation with the broad stock market contributes to a higher risk-adjusted return in a portfolio that largely consists of stocks and interest rates. Historically, gold has also functioned as an effective portfolio hedge, both against uncertainty/volatility in the market as well as inflation. For an investor who wants to diversify and protect his portfolio against inflation, gold is thus an interesting asset to invest in. Investing in gold provides exposure to a value-preserving asset that historically has performed well in times of high monetary inflation and financial market turmoil.
Low correlation between gold and other assets
The correlation coefficient is a statistical measure used to describe the linear relationship between two assets. A low correlation (close to 0) between gold and another asset means that they move completely independently of each other. If they have a +1 correlation, they move in the same direction together. When constructing an investment portfolio, you want assets with as low a correlation as possible (but not negative). Then you have parts in the portfolio that perform independently of each other, which gives you a higher risk-adjusted return. Gold can do well when the stock market goes bad and vice versa. But both can also go up and down at the same time since they have a correlation close to 0. On the opposite end of the spectrum, if something is negatively correlated, it moves in the opposite direction. Correlation -1 means that there is a completely inverse relationship between the performance of the assets, and then you get no return at all.
In conclusion: you want multiple asset classes in a portfolio with a correlation as close to 0 as possible, and gold’s low correlation with other assets makes it a good building block in a portfolio. This gives the portfolio a higher risk-adjusted return and a less volatile return profile.
How and where is gold used?
An average person holds approximately one ounce of gold. Gold is used for exclusive jewellery, but is also an important component in almost all technology that we use since the metal conducts electricity efficiently and resists corrosion.
For example, gold is used for:
- Computers
- Communication equipment
- Cars
- Space technology
- Jet engines
- Medical technology
Is gold a good investment?
Investing in gold is considered to be a value-preserving and inflation-protecting investment. The price of gold tends to rise in times of inflation and a declining dollar as well as it has a low long-term correlation with the stock market. Investing in gold contributes to risk diversification in a traditional portfolio of stocks and interest rates. The price of gold also tends to rise during times of market turmoil, making it an effective portfolio hedge in a turbulent market. Saving in gold has been very profitable for the last hundred years and the price of gold reached a peak in 2024. Historical returns are no guarantee of future returns. Adding both gold and gold mining companies to an investment portfolio improves its risk-return profile.
Why invest in gold mining companies?
If you invest in gold mining companies, you will have leveraged exposure to gold. The mining companies tend to earn more when the price of gold goes up, and vice versa. Investors can gain commodity exposure by buying these stocks because the share price of mining companies is dependent on the price of gold. A gold investment in mining companies also generates dividends, unlike buying gold bars or jewellery.
When should you invest in gold?
According to the independent global research company, Oxford Economics, gold should always be part of a portfolio, but how much of the holding depends on the market climate. In uncertain times, people tend to save in gold, and during periods of high growth, investors choose stocks and funds instead. You can choose to rebalance your portfolio yourself or invest in gold investment funds to let an expert invest in gold for you.
How to invest in gold
Gold plays an important role in a portfolio making it beneficial to have a gold investment plan in your portfolio strategy. There are different ways to buy gold as an investment:
- Physical gold: You can buy the physical commodity and store it at home, or in another safe place.
- ETCs (Exchange Traded Commodities): By buying an ETC, you own physical gold and pay a fee so that you do not have to manage the storage yourself.
- Derivatives: Investment products that follow the price of gold, but where you have a counterparty risk against the issuer of the product.
- Shares: The share price of mining companies that extract gold is strongly linked to the spot price of gold. Mining stocks often move more than the price of the underlying asset because you also add a corporate risk. This means that the share goes up more when e.g. the price of gold goes up, and vice versa.
- Funds: There are different ways to invest in commodities as well as different types of gold investment funds. When you invest in a fund, you pay a fee for an expert (fund manager) to select underlying assets that provide exposure to gold. A fund may contain one of the options listed above. There are two types of funds: daily traded fund which is an actively managed fund, which means that an expert reviews the holdings and rebalances at regular intervals. Exchange-traded fund which is a basket of securities that follows an index and trades like a stock.
How is gold purchased as an investment?
You can use gold in different ways in a portfolio depending on what type of investor you are. If you want to buy gold as an investment, you need to:
- Decide how much of the portfolio you want to be allocated, and then rebalance at regular intervals. If you are an active investor who likes to follow the market, you can weigh up and down your allocation depending on the market climate.
- Identify which fund or product you want to invest in.
- If you want to invest in a daily-traded or an exchange-traded fund (ETF), you can do so in the same place as where you buy stocks. Banks also offer trading with these funds. Gold funds are funds that invest directly or indirectly in gold.
- The easiest way to find a fund is to search for its name, ticker, or ISIN code when you are logged in to the selected platform/trading location.
Price of gold
Gold is priced in USD as a standard. This makes it important for an investor to understand how the price movement of USD in relation to the currency the investor is trading in. If you for example live in Europe and invest using the euro (€), the euro’s relative price in relation to the USD will affect your trade. A strong USD in relation to other currencies makes it more expensive for the holder of the weaker currency to buy gold. This effect results in that the spot price of gold measured in USD can decline in one currency, but appreciate in another currency. The price of gold has increased 60,8% in USD, 66,97% in EUR, and 80,69% in SEK during the past five years (2019-2023). Follow this link to see a live chart of the gold price.
Supply and demand of gold
It is difficult to estimate how much gold has been mined throughout history, but according to the World Gold Council, it is about 205,238 tonnes. That figure can be compared to the primary production of aluminium in the United States, which reached almost 900,000 metric tons in 2021 and exceeded 2 million metric tons in 2012. All mined gold can fit in a cube where each side is 22 metres long. The limited supply of gold means that the gold price stays at a stable, high level.
What the future holds for gold
In the recent decades, the price of gold has skyrocketed when there was concern in the financial market, for example, in 1980, 2008 and 2020. Therefore, there is reason to believe that gold will continue to increase in value if there are uncertain years ahead, and it may be a good idea to have a gold investment plan. Worries about global economic growth, fueled by continued inflation and higher geopolitical unrest mean that gold will maintain its value. The fact that gold is used in both jewellery and industry are other factors that indicate that the price of gold will continue to be high and investing in gold is a good idea. The price of gold also has an inverse relationship to the amount of money created by central banks. As long as this trend continues we are also likely to see an increasing gold price.
Historically the price of gold has always increased, or rather it has kept its value while fiat currencies have lost their value. Gold and gold investment funds have generated stable returns for long-term investors. Therefore, it is smart to both own physical gold and gold mining companies.
Gold offers protection against rising inflation
Over the past 61 years, inflation in the United States has gone up and down ー from 13.5% inflation in 1980 to a low of 0.5% in 2009. When inflation rises above 9% (June 2022) and is way above the Federal Reserve System’s target of 2%, many investors see how the value of their savings decreases. However, gold tends to be a good investment during periods of rising inflation, especially when combined with a weak dollar.
Why invest in gold mining companies with AuAg funds?
- AuAg Funds offers funds that focus on providing exposure to precious metals and elements within green technology. What they have in common is that these assets offer protection against monetary inflation and are necessary in the transition to a green world – trends that are highly topical today.
- AuAg's funds invest in gold mining companies and fit well into a portfolio of traditional assets as they have low co-variation with shares in particular.
- AuAg Funds offers both daily-traded and exchange-traded funds. What these have in common is that they focus on companies that extract gold and other precious metals.
- The AuAg Silver Bullet fund focuses on companies that mine silver – a metal that is in high demand due to its monetary properties as well as the properties that make it indispensable in our transition to a greener world.
- The fund AuAg Precious Green invests in physical gold, companies that extract important metals for the green transition, and companies that develop green technology.
- The AuAg Gold Rush fund is a fund that offers exposure to an equally weighted basket of 25 ESG-screened companies active in the gold mining industry. The fund follows the Solactive AuAg ESG Gold Mining Index which focuses on companies with low ESG risk.
- The fund can be traded through stock platforms such as Avanza and Nordnet.
- In addition to these platforms, the fund can be traded on international exchanges such as Deutsche Boerse Xetra, Borsa Italiana, and London Stock Exchange.
Gold is an interesting asset to invest in for an investor who wants to diversify and protect their portfolio against inflation. Investing in gold provides exposure to a value-preserving asset that has historically performed well in times of high monetary inflation and during uncertain periods in the financial markets. The co-variation of the gold price with the stock market is low, which makes the investment an interesting complement to a traditional portfolio consisting of shares and interest rates.
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