Gold is shining brighter than ever. ✨ Late last year, Goldman Sachs Research forecast the already soaring gold spot price index to climb even higher by early 2025. And they were right. Over one year, gold’s value has surged nearly 40%, exceeding record highs of US$3,000 for one troy ounce (just over 30 grams). Effectively, their prediction of economic and political challenges in the US has panned out. 

‍Escargot and gold at Costco. 🐌 Sure, along with snails, you can buy 1 ounce 24-karat gold bars online from Costco (COST). But for small investors — and some doomsday preppers — owning material gold comes with extra admin, like storage and insurance. Costco member shoppers also need to consider buying limits, and that there’s no buy back option or investor support. Meaning, investors ready to cash in their gold would need to sell through bullion dealers or an exchange, and the cost of this could wipe out any capital gains.

Gold’s biggest buyers: From London to New York

Gold is racking up air miles. ✈️ Small gold investors have a lot less to worry about than some of the world’s largest gold traders, such as HSBC (HSBC - ADR), JPMorgan Chase (JPM), Goldman Sachs (GS), and Citibank owned by Citigroup (C). These financial institutions own gold bullion, as well as invest in gold companies and mines. 

The Wall Street Journal’s Jessica Mendoza said of gold trading that ‘the actual mechanics of it can get pretty complicated’. She explains hypothetically that if a gold trader has US$1 billion worth of gold bullion sitting in Gringotts Bank (stored as gold bars, weighing around 400 ounces each), valued at say US$2,500 per troy ounce, they then also sell gold futures in New York to lock in that same price.

Gold futures are a month-to-month financial contract to sell at a fixed future date and price. This means, the trader has secured the US$2,500 price for a future date, which in an ideal world protects them against a potential price drop. It’s a financial balance Mendoza likened to a ‘seesaw’.

Trump’s trade tariff announcements rattled gold traders. 💣 Prior to the US election, Trump’s proposed tariffs raised concerns the move could potentially increase the price of gold. Then in February this year, as looming tariffs moved closer, JPMorgan announced they’d bring across US$4 billion of gold from London to New York. It made sense at the time because the London Bullion Market’s gold price was sitting lower than the New York gold futures market. 

‘Suddenly gold is much cheaper in London than New York. So you put on a new trade, you buy more gold in London, and you lock in a much higher price in New York and provided if you know you can get the gold over, it's almost free money.’ - Joe Wallace, WSJ, The Journal podcast

Despite the costs involved, transporting around 40 tonnes of gold bars nearly 6,000 kilometres could had the potential to prevent billion dollar losses.

But the logistics were complicated. 📦 Only half a billion US dollars of gold bars can travel on each commercial flight, based on the upper limit set by insurers. Then, from the Bank of England’s deep underground vaults — the world’s second largest depository of gold bullion — each gold bar specific to each owner needs to be hand-picked, then sent to Swiss refineries to be melted down and remade into the smaller US gold bars (of around 100 ounces). 

After all this, it’s flown across the Atlantic to New York. And while rumours swirled about who in New York had and hadn’t lost money from scorched futures, some gold seems to have clocked up the air miles.

What to look for when assessing gold stocks

All that glitters are gold stocks? 🌟 While gold traders keep waiting for ‘clarity’ of tariffs on gold, VanEck gold portfolio manager Imaru Casanova’s labelled gold’s growth as ‘safe-haven’ while concerns remain around US trade policy:

‘The Trump administration’s policy induced uncertainty, combined with rising inflation expectations and diminished consumer confidence, weighed on major stock indexes, further boosting gold’s appeal as an alternative investment and portfolio diversifier.’ — Casanova

‍Forbes has suggested that for investors looking to diversify their portfolio with gold stocks as potential investments that they research using the following criteria using publicly available information found in a company’s quarterly or annual earnings report:

• Debt/equity ratio below 0.5
• Average buy or strong buy rating from three or more analysts
• Operating margin of above 25%
• Free cash flow (FCF) per share of US$0.75 or above
• Dividend yield of 1% or more

Forbes found five stocks that met their search criteria:

• Royal Gold (RGLD) — a precious metals stream and royalty company
• Barrick Gold (GOLD) — a Canada-based gold and copper producer
• Agnico Eagle Mines (AEM) — a Canada-based gold mining company
• Newmont (NEM) — a gold producer with worldwide operations
• Kinross Gold (KGC) — a Canada-based global gold mining company with operations in America and West Africa

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Some other billion dollar gold and mining stocks include: Wheaton Precious Metals (WPM), Franco-Nevada (FNV), Gold Fields (GFI), Royal Gold (RGLD), AngloGold Ashanti (AU), Alamos Gold (AGI), Equinox Gold (EQX), SSR Mining (SSRM), and DRDGold (DRD - ADR). 

Gold ETFs can help diversification 

ETFs give investors exposure to gold markets. 🛒 Gold exchange traded funds (ETFs) have benefitted from the rise in gold prices and have been used to hedge against inflation. That is, gold can protect the value of money from decreasing due to inflation.

‘Gold bugs often say an ounce of gold should always be able to get you a new suit. In 1950, an ounce of gold was worth US$40, which was about the price of a new suit. Today, an ounce of gold is over $2,600, which can buy a very nice suit and more. But you cannot buy a new suit with US$40.’ —  Brett Elliott, director of marketing with American Precious Metals Exchange, US News

In researching gold ETFs, Motley Fool, Kiplinger and Nerd Wallet suggest investors should look for ETFs and fund managers that have:

• At least $200 million of assets under management making them less affected by volatility
• An expense ratio of less than 1%
• Non-leveraged, meaning it doesn’t borrow money or derivatives such as futures
• Five-year returns that mirror gold movements
• Low cost fees

Some ETFs that meet the criteria include:  

• SPDR Gold Shares (GLD) — an investment trust that reflects the performance of the price of gold bullion
• iShares Gold Trust (IAU) — owns gold bullion and issue shares against the trust
• iShares Gold Trust Micro (IAUM) — owns gold bullion and issue shares against the trust
• VanEck Vectors Gold Miners ETF (GDX) — seeks to match as closely as possible the price and yield performance of the AMEX Gold Miners Index
• SPDR Gold MiniShares Trust (GLDM) — seeks to reflect the performance of the price of gold bullion 
• VanEck Vectors Junior Gold Miners ETF (GDXJ) — seeks to replicate as closely as possible the price and yield performance of the Market Vectors Junior Gold Miners Index
• Franklin Responsibly Sourced Gold ETF (FGDL) — seeks to hold only responsibly sourced gold and aims to reflect the performance of the price of gold bullion
• Goldman Sachs Physical Gold ETF (AAAU) — owns gold securely stored by Gold Corporation
• GraniteShares Gold Trust (BAR) — seeks to reflect the performance of the price of gold

White House may shed gold for Bitcoin

Central banks are stockpiling gold… but the US might sell for Bitcoin. 🏦 According to Investment News, in February, global central banks owned ‘roughly one-firth of all the gold ever mined’ — although possibly not including the Reserve Bank of New Zealand. And some say they’re buying ‘more gold than they are disclosing’. 

Now it appears that the US may sell some of its gold reserves to buy 1 million bitcoin. Today bitcoin is worth around US$88,000, and buying bitcoin is considered by some to be another potential way to hedge against inflation.

‘Federal purchases of crypto would send a signal that crypto is here to stay, encouraging other respected financial institutions to buy in. Other governments, too, might follow the lead and create their own reserves, further upping prices.’ — Andrew R. Chow, TIME

Investing in gold can take many forms — as can simply stealing it 🚽 — but research is always key. And perhaps investors may want to take a leaf from Warren Buffett’s playbook, and ‘Be fearful when others are greedy, and be greedy when others are fearful’.

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