Australian Gold-Backed ETFs – Massive Capital Influx, Impeccable Performance, And Record Values

  • Aug 08, 2020 AEST
  • Team Kalkine
Australian Gold-Backed ETFs – Massive Capital Influx, Impeccable Performance, And Record Values

Summary

  • Gold prices are knocking the heaven’s door with the spot price again reaching a new record high of USD 2,072.79 per ounce.
  • The surge in gold prices is well supported by a large purchase of physical gold by the global gold-backed ETFs.
  • Why should one invest in gold?
  • Impeccable performance of Australian gold- and silver-backed ETFs.
  • ETFS Metal Securities Australian Limited (ASX:GOLD) climbs to a record-high $268.910 per unit.
  • Strong deliverance from Perth Mint gold-backed ETFs

Gold- the ultimate safe haven is witnessing a demand rush in the international market, which is propelling gold prices higher and higher. The gold spot has now reached a record high of USD 2,072.79 per ounce (as on 7 August 2020 4:02 PM AEST), delivering an impeccable price return since the onset of the year 2020.

The gold prices are witnessing a demand rush amid strong tail winds and relentless buying from the global gold-backed ETFs, and it is always better to consider some smart ways for investing in gold to safeguard ones investment at the times of high market volatility.

Also Read: Gold Supply Disruptions and Paradigm Shift in Gold Miners’ Business Strategy

Gold as a safe haven safe guards from extreme tail events, which could be seen in the market with high volatility caused by the COVID-19 outbreak on the global front. In the environment of economic or any other turmoil, gold appreciates in value, which further provides an investor with a decent return.

Gold at the late stages or around the retirement age could provide various strategic advantage over the traditional risky assets.  

  • A person losses tranche of fixed cash flows or income upon retirement, and to maintain individual goals or lifestyles, people plan for retirement; however, as one reaches retirement, the risk-taking appetite decreases, and people typically become more risk-averse. 
  • The developing risk-aversion directs people to gold as investing in gold could become a smart move due to gold’s ability to hedge against inflation and decent price appreciation over time.  
  • Liquidity or the need of immediate cash flow is another retirement-related concern, which could be addressed by allocating a portion of a retirement portfolio in gold.  

Gold as a limited natural resource is as liquid as any risky asset, and strategically could be readily converted into cash.

  • However, investment in gold does not come without risks and understanding them is an integral part of assessing a reasonable allocation to gold out of the total portfolio size.

Pros and Cons of Gold Investing

Pros

  1. Safeguards investment during times of inflation
  2. Prevents drastic capital erosion
  3. Provides decent return
  4. Provides Hedge against systematic and non-systematic risk

Cons

  1. Goes through long consolidation phase
  2. Non-coupon bearing asset
  3. Expensive as a physical Investment
  4. No way to calculate its intrinsic value

While the pros and cons are many, depending upon how, what, and when; the manner in which one invests in gold could address and resolve the associated risks of investing in gold.

To Know More, Do Read: Smart Ways Of Investing And Storing Gold Amidst Gold Rush

Investors can take exposure in gold either directly by entering into gold futures, or by buying physical gold, or through investing in gold-backed ETFs and much more.

  • However, these days, gold-backed ETFs are gaining more attention, when it comes to investing in gold as the gold-backed ETFs are highly structured products.

An investment in gold could be parked either directly in gold or the structured products related to gold such as gold-backed ETFs. Investment in gold could be broadly categorised into the direct and indirect approach.

Taking long/short in futures and buying physical gold, comes under direct investment, while purchasing gold mining stocks, buying gold-backed ETFs, etc., comes under indirect investing.

Structured Products

Structured products are vast in number and can be tailored as per the specific requirement of an investor, which in turn, give these products high attraction in the market. One such example of a structured product is gold-backed ETFs.

Gold-Backed ETFs

Gold-backed ETFs come in variety of forms such as physically-backed, backed by securitisation, backed by stocks, etc.

  • Physical gold-backed ETFs buy physical gold and distribute units as per the investment made by an investor. The physical gold-backed ETFs offers storage cost advantage over physical gold, as these ETFs buy physical gold and could deliver whenever and wherever a person wants.
  • However, the additional maintenance charge of physical gold-backed ETFs shows a similar pattern as investing directly in gold.

Some gold-backed ETFs also maintain exposure to gold mining stocks along with physical gold, which, in turn, gives an additional advantage over direct investment in gold.

Recently, the gold-backed ETFs have witnessed a very high capital inflow, which in turn, has prompted the ETFs houses to purchase a high quantity of gold.

To Know More, Do Read: Gold- A Sprinter in the Marathon, Is the Price Rally Sustainable?

ASX Top-Performing Gold- and Silver-backed ETFs 

ETFS Metal Securities Australian Limited (ASX: GOLD)

  • The gold ETFS and silver-backed ETFs are among the top-performing ETFs on ASX so far with a YTD return of 2 per cent and 30.4 per cent (as on 4 August 2020), respectively.
  • The ETFS Physical Precious Metals Basket (or ETPMPM) has delivered a YTD a return of 1 per cent (as on 4 August 2020).

On a 12-month basis, the ETFS Physical Silver (or ETPMAG) has delivered a return of 39.7 per cent (as on 4 August 2020) while the ETFS Physical Gold (GOLD) has delivered a return of 31.8 per cent (as on 4 August 2020).

The 12-month total return delivered by the ETPMPM stood at 29.9 per cent (as on 4 August 2020).

  • Over its impeccable performance, the ETFS Physical Gold ETFs have witnessed a capital inflow of $587.9 million on a YTD basis while witnessing a capital inflow of $892.2 million on a yearly basis.

Perth Mint Gold (ASX:PMGOLD)

The gold-backed ETF is designed to track the international price of gold in Australian dollars and offers investors a simple, low-cost way to access the returns on gold.

  • Each PMGOLD unit represents ownership of 1/100th of a troy ounce of gold.
  • The ETF has closely monitored the price rally in gold since its inception in 2003 and has delivered a 1-year return of 27.39 per cent (as on 30 June 2020).

In a nutshell, gold prices are skyrocketing in the market, leading to a higher cash inflow into the global gold-backed ETFs.

Likewise, the rally in silver, which is not at all lagging behind its forerunner, and even outperforming on a YTD basis, is also fetching a large capital in the face of physical silver-backed ETFs.

The rush in gold and silver prices has significantly supported the capital inflow and strong performance of ASX-listed gold- and silver-backed ETFs, respectively.

The per-unit price of ETFS Metal Securities Australian Limited last traded at $268.150 (as on 7 August 2020), near its 52-week high of $268.910 and up by 0.78 per cent against its previous close on ASX.

 


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