One of the most spectacular investment trends of the last couple of years has been the rise of gold, which this month broke through the psychological barrier of US$3,000 an ounce for the first time in history – round numbers being psychologically influential in humans.
This sustained rise in the yellow metal has been mainly powered by increasing geopolitical tensions across various regions, which create significant market uncertainty, and play directly into gold’s traditional role as a safe-haven investment, that tends to keep its value in the long run and consequently can be used to store wealth in an investment that rises with inflation.
Gold offers no explicit yield, and there is a cost to hold it. But investors are increasingly prepared to overlook this, for the perceived benefits gold can bring to an investment portfolio. There definitely appears to be increasing investor confidence in gold.
The metal has posted 16 record highs this year, and earlier this month, gold reached an all-time peak of US$3,057.21 an ounce.
Since the start of 2024, gold has risen by just under two-thirds, from US$1,818.30 an ounce to US$3,015 an ounce. To the record peak, that rise is 68%.
In Australian dollar terms, the rise is just under 60%, with gold in Australian dollars trading at $4,819.47 per ounce.
Analysts at some of the biggest global banks in the world believe gold can move higher, on the back of continuing geopolitical concerns and expectations of US rate cuts later this year.
Citi and UBS both just lifted their short-term gold price forecasts from US$3,000 an ounce, to US$3,200 an ounce. Financial information, data and forecasts provider TradingEconomics.com, using its own proprietary global macro models and analysts’ expectations, estimates a price target of US$3,181.48 in 12 months’ time.
While it has always been possible for individual investors to buy, store and hold gold bars and coins as an investment, the advent of exchange-traded products (ETPs) has given investors the simplest exposure possible, in the form of an ASX-listed security, which means that in one transaction, investors can invest as much as they like (depending on ASX liquidity at the time, but these are mostly highly liquid securities), and realise any proportion of their investment at any time through a sale on the ASX, too.
Here are the four ASX-listed gold ETPs, with the kind of exposure each offers, its management cost (per year), and the buy/sell spread. This refers to the spread between the ‘bid’ price (price at which investors are wanting to buy) and the ‘ask’ price (the price at which people are willing to sell the units. The bid-ask (or bid-offer) spread is the difference between these prices. These bid-ask spreads, along with the brokerage, are the ETP investor’s transaction costs; the annual management fee is the ongoing cost of holding the investment and having it managed.
For investors who want an exposure to gold, these four securities are the simplest and easiest ways to do so, simply using your stockbroking account.
Global X Physical Gold ETF (GOLD, $44.35)
Market capitalisation: $4.4 billion
12-month total return: 44.4%
3-year total return: 22.3% a year
Listed on the ASX in 2003, the $4.4 billion GOLD was the first security of its kind in the world. It is the largest and most liquid gold-backed exchange-traded product (ETP) traded in Australia. It represents 923,545 ounces of physical gold held in the London bank vaults of JP Morgan Chase Bank. This gold is segregated and allocated – as in, specifically allocated to an investor – meaning they have direct ownership of the specific gold bars or coins, which can be stored securely or delivered (‘unallocated’ gold bars can be loaned to third parties without an investor’s consent, which raises some counterparty risk if the custodian bank ever defaults. The GOLD units are fully redeemable for bullion.
Each GOLD unit (or share) represents about one-tenth of the spot gold price, in Australian dollars; thus, the value of the GOLD units moves with the Australian dollar spot gold price. GOLD is unhedged; and is managed for 0.4% a year, and the buy/sell spread is 0.05%.
Perth Mint Gold ETF (PMGOLD, $48.00)
Market capitalisation: $1.5 billion
12-month total return: 44.8%
3-year total return: 22.6% a year
In May 2003, the GOLDs were joined on the ASX by the Perth Mint Gold Quoted Product (PMG), which is a right created by Gold Corporation (owned by the Western Australian government) to buy one-hundredth of an ounce of gold from the Perth Mint, with a WA government guarantee. Each PMGOLD unit represents ownership of one-hundredth of an ounce of gold, so the security’s price will also move with the Australian-dollar spot gold price.
PMGOLD is not physically backed but represents a right to buy gold: like GOLD, all PMGOLD does is track the $A gold price, minus a management fee. PMGOLD can be converted into holdings in a Perth Mint Depository account. The security is managed for 0.15% a year, and the buy/sell spread is 0.11%.
BetaShares Gold Bullion ETF (QAU, $24.90)
Market capitalisation: $808 million
12-month total return: 35.3%
3-year total return: 13.5% a year
Listed in May 2011, BetaShares Gold Bullion was established to offer investors currency-hedged exposure to the performance of gold bullion, for those who want to remove currency risk. QAU is backed by allocated physical gold bullion bars, which are held in a vault of JP Morgan Chase in London. QAU is managed for 0.59 per cent a year, and the buy/sell spread is 0.10%.
VanEck Gold Bullion ETF (NUGG, $48.02)
Market capitalisation: $98 million
12-month total return: 44.8%
3-year total return: n/a
The most recent of the ETPs, Van Eck’s NUGG was listed in December 2022. It is backed by physical gold bullion bars – which Van Eck specifies as being of “Australian origin” – stored at The Perth Mint, and NUGG investors can convert their allocated NUGG holdings to actual gold. NUGG is managed for 0.25 per cent a year, while the buy/sell spread is 0.14%.
What are the differences?
Of the four, PMGOLD is slightly different from the other three in that individual gold is not allocated to investors; the issuer (the Perth Mint) owns the bullion, and investors have the right to acquire it. PMGOLD has the cheapest management fee of the four ETPs, because its unallocated structure means lower storage costs.
The BetaShares product, QAU, is currency-hedged, meaning the manager hedges against currency movements between the US and Australian dollars to give a “purer exposure” to the gold price. The cost of the hedging explains the higher annual management fee. QAU is not exposed to currency fluctuation, but some investors think of currency risk as actually another layer of diversification, given that most Australian investors hold at least 70%–80% of their assets in Australian dollars anyway.
Investors in GOLD, PMGOLD and NUGG can benefit from both the rising gold price and the potential for the Australian currency to fall against the greenback – which can augment their gold-price return (it can also detract from it, too, in some circumstances.)
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
