Performance of indices over 1 month
Source: FE Analytics
Chancellor George Osborne has also waded into market sentiment this week to warn against the potential for unease in the eurozone to spill over into UK markets.
Trevor Greetham, director of asset allocation at Fidelity, says stocks have sold off sharply over the last couple of weeks in response to signs of economic weakness in Germany and China.
“However with commodity prices falling this is a disinflationary shock and that means central banks will most likely trigger a rally by stepping up their stimulus operations or by signalling a further delay before raising interest rates,” he said.
Discontentment appears to have spurned a slight uptick in the gold price despite a strengthening dollar, in what could be a return to the traditional view of gold as a flight to safety asset.
Chris Beauchamp, market analyst at IG, says the recent rally has been caused by a move to perceived safer assets but it is being held back by the strength of the dollar.
“Gold might be a safe haven in times of turmoil, but with yields at a premium investors are switching to the usual suspects, the dollar and US treasuries. Gold advocates have been bravely increasing positions but the precious metals sector is not immune from the turmoil in other commodities. The dollar is still king, and commodity bulls would be wise not to forget this crucial fact.”
For those looking to reallocate capital to gold here we look at several different ways to gain exposure.
Exchange traded funds
Investors can access direct exposure to the gold spot price through several different exchange traded funds (ETFs) such as the ETF Securities Physical Gold, DB Physical Gold and iShares Physical Gold funds.
The funds track the price of physical gold as measured by the spot price with the DB Physical Gold ETF having the best tracking error.
All three have lost money over the past three years thanks to a torrid performance for gold, which had rallied for the previous decade, as investors moved money out of the precious metal and into equity markets.
According to FE Analytics, the three ETFs have all lost slightly more than the S&P 500 Gold Spot index which is down 27.62 per cent.
Performance of ETFs and index over 3yrs
Source: FE Analytics
However, since the start of the year the three funds, as well as the index, have seen a boost of more than 4 per cent.
ETF Securities Physical Gold has a total expensive ratio of 0.39 per cent while DB Physical Gold and iShares Physical Gold cost 0.29 per cent and 0.25 per cent respectively.
Equities
Investors can also take a bet in gold by buying shares in gold miners. Stocks such as African Barrick Gold, Fresnillo and Randgold Resources had a torrid 2013 and were amongst the worst performers in the FTSE All Share.
Performance of stocks and index in 2014
Source: FE Analytics
The three companies all lost more than 55 per cent over the course of last year but bounced back in 2014 while the FTSE All Share has lost 2.37 per cent.
Funds and investment trusts
There are several specialist gold funds in the IMA universe such as £1bn BlackRock Gold & General fund, managed by Evy Hambro, and the £45m Investec Global Gold fund, which is managed by FE Alpha Manager Bradley George.
The two funds invest in a variety of shares relating to gold miners as well as the physical commodity and have therefore suffered heavy losses in over the past three years but seen an improvement in performance in 2014.
Performance of funds and index in 2014
Source: FE Analytics
BlackRock Gold & General fund is up 9.33 per cent and Investec Global Gold is up 5.79 per cent, ahead of both the spot price and FTSE Gold Mines indices.
Other funds have gold exposure including the three Jupiter Merlin funds, which hold an ETF in physical gold. The Jupiter Absolute Return fund has 2.03 per cent while the Jupiter Merlin Conservative and Growth Portfolio have 5.61 and 2.26 per cent.
Henderson Multi Manager Income & Growth and Henderson Multi Manager Managed are also holding gold exposure with 3.43 and 3.17 per cent of their funds in an ETF while Investec Cautious Managed has 6.57 per cent exposure.
