For the first time ever, gold bars are worth one million dollars! After tremendous growth of 21.88% year-to-date at the time of writing*, the gold spot price passed $2,500 per troy ounce on Friday, marking a new all time high. With gold bars weighing 400 ounces (they can actually vary from 350 to 430 ounces of pure gold) that means one bar has hit the seven-figure mark. To clarify, these measurements are for gold bars in the London market which is the global center for gold trading. Individuals who have opted to invest in physical gold typically have smaller, more affordable bars such as the ones sold at Costco.
Gold has always been prized as a precious metal and its role in trade and use as money dates back over 6000 years and spans the globe. Ancient Egypt, Aztec Empire, Ancient China, and the Greek and Roman Empires all used gold as a measure of power and wealth. The Spanish conquest of the Americas was largely driven by the pursuit of gold. In the 19th century, many countries adopted the gold standard – a system of linking the value of a currency to the quantity of gold in that country’s reserves. This system was abandoned by the US in the 1970s and the Swiss Franc was the last currency to abandon the gold standard in 2000.
Investing in gold can mean owning physical gold bars or coins as mentioned earlier. This method offers the benefit of having a physical asset on hand which allows the investor to be prepared for worst case scenarios where accessing a digitally held asset may not be an option. On the other hand, it means storage costs and risk of theft. The other option, owning gold through a mutual fund or ETF, usually makes more sense for investors during normal times.
Gold has a fairly reliable track record as a safe haven in market downturns, geopolitical crises, and currency devaluations. Additionally, the value of gold has a very low correlation to stock and bond prices. This diversification of returns can make gold a beneficial addition to an investment portfolio to reduce overall volatility.
We aren’t lugging any gold bars around the DWM offices, however we do get our clients exposure to the returns and diversification benefits of gold! We do this through iShares Gold Trust (IAU), an ETF with a very low operating cost that is a position within our DWM Liquid Alternatives model. The non-correlated return benefits discussed above are the whole idea of this model. Gold, in addition to other commodities, public REIT funds, and mutual funds that utilize hedge fund like strategies, functions in this model to provide returns that have a low correlation to stocks and fixed income help protect our clients’ portfolios from downside risk. Working with a trusted advisor like DWM allows investors to take advantage of all the tools available to them, including gold, to make sure their investments are suited to fit their needs and risk tolerance.
*as represented by IAU iShares Gold ETF