We’re BUYING: iShares Physical Gold ETC (LSE:SGLN)

Welcome cheapskates to a slightly different stock portfolio focus article. As you will have been aware if you subscribe to our newsletter, we are getting a little nervous bout the high value of the stock market right now. The S&P500 is trading at a P/E ratio of almost 40 and its only ever been that high twice in history (once was the 2008 financial crisis and we all know what happened there!). We have also been waiting for a good time to look at diversifying and hedging our portfolio with other types of investments, but during Covid, many of them soared. However, we feel like right now is the perfect time to start diversifying and protecting our portfolio – and what better way to do it with the classic investing standard, GOLD.

We’re not going to talk about the history and the different ways of investing in gold and precious metals (that will be covered in an article that’s coming soon) but you can probably infer that the below stock is our favoured method for getting exposure to it.

As always, the following is not financial advice, read our disclaimer

Why now?

Up until now, we have been a channel pretty dedicated to investing in a diverse range of stocks and shares, crypto and savings. We feel that with the right approach, investing in good quality stocks and the wider stock market can net you a return that’s hard to beat. After all, looking at long term data, the developed stock markets have beaten the returns of gold over time by 3-1. With that in mind, investing in gold instead of stocks over the past 30 years would have been the equivalent of leaving money on the table.

HOWEVER, we believe that these are very uncertain times and Covid-19 has been a catalyst for a pretty unique investing landscape. It’s hard to look at the graph below and think “yep, I’m going to keep buying into an S&P500 ETF” (full disclosure, we still are investing into the S&P500) because it seems so much higher than it really should be.

In contrast to a stock market that’s at an all time high, the gold market hasn’t exactly has a peachy start to 2021. At it’s peak in August of 2020, gold was trading at over $66,000 per KG. Today, it trades at just over $57,000. That’s a pretty sizeable drop for 11 months, but we need to remember that the reason gold soared so high was precisely because of Covid and the stock market crash in March of 2020.

They’re inverse of each other, well kind of….

What we find over time is that gold tends to pop up when stock markets crash and tends to get depressed when stocks are rallying. The simple reason for this is when people are selling stocks, people need somewhere to put their money and vice versa. If we take a look at the price today, we could say that gold is actually at about a fair price, almost where it should be if we take an average average yearly rise and apply it to the last few years. Yes it had a big peak in the middle, but this doesn’t necessarily mean it’s discounted….

However, all in all, we feel right now gold is trading at a fairer price than the stock market at large. We have no idea if the stock market is going to continue going up or will crash, but since we have been holding almost zero gold in our portfolio, we think now is as good a time as any to buy in. And who knows, if interest rates do trickle up sooner than anticipated (as the U.S. fed have indicated), it could turn out to be a very shrewd investment.

Back to the iShares Physical Gold ETC

The way we have chosen to invest in Gold is through the iShares Physical Gold ETC (LSE:SGLN). We’re big fans of the iShares offering of funds and commodities, especially for the more niche indices they offer (see our recent article on the iShares global clean energy ETF). The iShares Gold ETC is a stock that you can invest in on the London stock exchange through all of the major platforms that aims to follow the LBMA (London Bullion Market Association) price of gold, which is a common benchmark for gold. An ETC is able to do this by backing the shares with collateral (in this case, physical gold) to keep the price as close to the price of gold as possible (an ETC is actually backed by an underwritten note from a bank that is then collateralized, but we’re not going to get into the specifics of ETC’s here)

The long and short of why we chose to invest in gold this way is cost – we think it’s the most cost effective way of investing in the stuff. See below on why we invested this way:

Cost

We already alluded to this, but we can’t state it enough, the iShares Physical Gold is one of, if not THE most cost effective way of investing in Gold. There are a nu,ber of ways you can invest in gold:

  • an ETC
  • an ETF or Trust
  • Physical Bullion
  • Physical Stored
  • Options and Futures
  • Gold Mining companies

But by far the cheapest way is through an ETF or an ETC. The reason for this is that it involves no handling or storage of the actual gold and is managed by a company that is controlling a huge amount of assets. This means that the fees charges are particularly low. The fee on this ETC is 0.15%, which is exceptionally low. Even the bid offer spread is a pretty tight 0.04. In contrast, the iShares Gold Trust charges a 0.25% fee and buying physical gold almost always comes with a premium for manufacture (usually 3% or more), shipping fees and / or storage fees!

Conventient

Investing in this stock is easy. It’s available on almost all platforms, trades in GBP (so no foreign exchange fee) and can be bought with the click of a button. Even though you can buy bullion by post these days, it’s still no where near as convenient as investing through an ETC.

But all of that pales in comparison to SELLING the gold. If the worst were to happen and you had to begin to liquidate your investments, being stuck with physical gold (barring something like a nuclear event where trading in physical stuff would become the norm, and even then, would anyone care about gold?) would just be an additional hurdle in moving your funds. Not only that, most places that will buy your gold quickly will want to buy it at a discount, eating into your profits even more.

Secure

iShares is a trusted and well known name in the investing scene and SGLN is one of its most popular products. The fund size is almost a whopping 13 billion and is backer by physical Gold held with JPMorgan. It’s also had a good track record of following the price of the LBMA very closely, meaning that there’s minimal loss when it comes to buying and selling your shares.

All in all, this gives us confidence that if we wanted to hold our ‘gold’ for the next 30 years, we could do so with this ETC and our money would be safe. We would expect to get as close to the real return of gold over those years as possible.

Next Up…

Thanks for reading! Head on over to our portfolio section to see what else we’re investing in.

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