“Gold has been a shining star in a dazzling year for the exchange-traded product industry.” says the FT.
“..net new flows of $64.2bn into commodity ETPs in the first seven months of 2020, up from just $7.8bn in the same period last year”
“Gold is clearly seeing very significant inflows compared to last year,” said Deborah Fuhr, co-founder of ETFGI.
It is possible gold may rise further. Up 26% this year sounds fantastic. Who knows if it will rise further. Gold has no yield and hard to value. History shows the average return lower than stocks. So if over the long term there is no great benefit in owning gold, it means you need to trade. That means, knowing when to sell?
Do you have the plan to sell? You need a plan to sell even before you buy. Have you got one? Are you buying bullion? The simplest gold ETF, for example, will hold bullion and nothing else. If you bought a share of this type of fund, you’d be taking ownership of part of that bullion – and the value of your share will therefore closely track the market price of gold. However, gold ETFs can also be more complicated, holding assets like gold futures or stocks in gold-mining companies.
And then there’s a question of how much do you allocate into gold? If you allocate 1% of your wealth into gold, and it grows another 26%, you will feel great. If gold crashes, with only 1% of your wealth allocated to gold, the impact is negligible. It’s not really the 1% you need to focus on, but the remaining 99%!
To make money, you really need to allocate more of your wealth to gold. If you do, how much of a bet are you prepared to take? What about 25%. Clearly, if 25% of your wealth is allocated to gold and it happens to grow by 26%, you will make a big difference to your net worth. Equally, you could take a big hit.
Perhaps rather than getting caught up in gold, (or the lastest investment fad), you should focus on 99% of your assets. The maths always makes sense.