Investing in gold

A brief history of gold 

Gold has been one of the most treasured and sought-after commodities throughout history – whether as a show of wealth, or a bartering tool. Early on, it was used to trade for goods and services, later being made into coins. Then, it was used to back many of the world’s currencies in what was known as the ‘gold standard’. 

That system was officially abandoned when President Nixon cut ties between gold and the US Dollar in 1971. Nevertheless, to many people, gold has remained a valuable and in-demand precious metal. 

Gold tends to behave differently than traditional assets like stocks and bonds. A common perception is that it’s a ‘safe haven’ asset. In reality though, it’s tricky to say a true ‘safe haven’ exists. Valuations can dramatically fluctuate, and every investment comes with some level of risk.

Where does the demand for gold come from?

First, there’s its cultural significance across Asia, but particularly in India and China. Jewellery makes up roughly half of the annual gold demand, with technological uses sitting at about 8%. In these sectors, demand tends to be stable. Central banks and investments account for the remaining demand. The difference is that for the latter two sectors, needs may fluctuate from year to year and are often driven by uncertainty and fear.

In 2022, a record amount of 1,135 tonnes of gold was bought by central banks, almost a quarter of the total demand for the metal. This was particularly high in emerging market regions, where banks sought to diversify their reserves and help manage geopolitical risks.
 

What’s the current situation with gold?

Today, gold still plays an important part in some investors’ portfolios, for a variety of reasons. Just as central banks want to diversify their reserves, many individuals want to diversify their portfolios and hold physical assets that may retain value over time.  

Over the last couple years, we’ve seen how the gold price can been impacted by economic and political conditions. For example, when Russia first invaded Ukraine in February 2022, some investors looked to mitigate risk with perceived ‘safe havens’ like gold, driving the price higher.  

Now, with the escalating conflict in the Middle East following the attacks by Hamas in Israel, the volatility-hedging characteristics of gold could continue to attract investors.
 

Why invest in gold?

Gold can offer good diversification benefits, for investors and central banks alike, because it tends to behave differently to other assets. Gold can also help investors manage risk in times of heightened volatility and global uncertainty.  

Gold has typically done well in times of triumph and turbulence, as investors have looked to perceived ‘safe havens’ to offset riskier assets. Recent conflicts have pushed the gold price near historic highs. 

Gold can also be useful when inflation is high and rising. This is particularly true when high inflation has been caused by an economic slowdown or sudden unexpected crisis. It tends to be less desirable when rising inflation is offset by rising interest rates and bond yields.  

Over these past 50 years, gold has produced positive real and nominal growth in periods of high inflation, stagflation, and recession. It has also made smaller, positive returns when conditions have been more stable.

How to invest in gold 

Gold exchange-traded commodities (ETCs) can be a simple and efficient way for investors to get exposure to the gold price.  

Gold ETCs are usually backed by physical gold. This means the ETC will buy gold bars (stored in secure bank vaults) which match the total value of the ETC.  

One of the main benefits of an ETC is that the heavy lifting is done by the ETC – sourcing, transporting, storage and insurance of the physical gold bars. It also means that the bars can be bought and sold throughout the day like regular stocks and shares. The unit price is set against a standard benchmark, like the London Bullion Market Association (LBMA) gold price.

Investment risks

For complete information on risks, refer to the legal documents.

Applies to Invesco Physical Gold ETC, Invesco Physical Gold EUR Hedged ETC and Invesco Physical Gold GBP Hedged ETC - Value fluctuation, Limited recourse, Commodities.

Applies to only Invesco Physical Gold EUR Hedged ETC and Invesco Physical Gold GBP Hedged ETC - Currency hedging - ETFs
 

Investing in gold with Invesco

Typically, you’d access one of our exchange-traded products through an online trading platform directly. You could also buy and sell through a stockbroker, or through your financial adviser, just like ordinary stocks and shares.