The Covid-19 pandemic plunged the world into the most intense economic recession in recent decades. This situation has caused governments to increase their public debt in order to increase their economic and social aid packages. At the same time, the central banks have started up their banknote-issuing machine, further reducing interest rates. Now, more than a year later, the ghosts of inflation have returned to the scene, which if fulfilled would automatically reduce the value of money.
Faced with this situation, many investors seek to invest in uncorrelated securities to protect their money. In this sense, “gold has shown over time that it is a good asset to diversify investment portfolios,” says Jonathan Capelo, wealth advisor at Portocolom AV. The expert affirms that the price of this precious metal is mainly linked to four factors: the dollar, interest rates, inflation and investor sentiment. “The price of gold is closely linked to the momentum of the market and the reflation scenario is a good scenario for this metal,” says Capelo.
For his part, Ned Naylor-Leyland, head of gold and silver strategy at Jupiter, shows how the extraordinary level of government spending and central bank stimulus for the faltering world economy suggest that falling real yields are inevitable. “This drop tends to push up gold and silver prices, because monetary metals are seen as offering protection against the erosion of purchasing power,” he says.
The price of gold has increased by an average of 9.2% per year in euros since 2015, in 2019 it grew by 22.7% and in 2020, by 14.4%. Taking this into account, Gilles Seurat, multi-asset manager at La Française AM, although he does not expect its performance this year to be as impressive as that of 2020, when it appreciated more than 25% in dollar terms, if shown positive. “Many investors, especially retailers, are concerned about a possible rise in inflation, and historically tend to buy gold to hedge against inflation, so we could expect additional flows into the precious metal this year,” Seurat comments.
Without forgetting, “that monetary policy should continue to be very accommodative in the United States, which should continue to increase the monetary base rapidly and help gold perform well in dollar terms,” adds the expert from La Française AM.
Xavi San Miguel, director of investments at EAFI BISSAN Value Investing, a company, is more skeptical. “If real interest rates continue artificially low as they have been, it will be necessary to continue launching new fiscal or monetary measures, so gold can continue to rise. But if governments start to reduce their measures and allow the free market to do its thing, work, it may happen that interest rates normalize upwards and gold suffers a lot,” he says. And he adds, “If there is no clear enough move in one direction or the other, gold will follow a sideways pattern for some time. But let the market guide us first before taking positions.”
On the contrary, Santiago Gil Luezas, managing partner of Personal Family, also present at the , if he thinks it is a good time. “Gold is a safe-haven asset that tends to appreciate when there is uncertainty in the markets, and it is on the rise due to the strong appreciation in recent months and the feeling that there may be some overvaluation in both equities and fixed income. If we add to this the growing rumor mill about a sharp increase in inflation, we would say that all the circumstances are in place for it to be an appropriate time to invest in gold,” he summarizes.
The best way to invest
Despite this, Gil Luezas is not in favor of devoting a significant part of the portfolio to this asset, “maximum 5-10% if the client requests it. It is an asset with great volatility. And we believe that the rise in inflation It could be a circumstantial issue,” he argues. But what is the best way to invest in this asset?
There are different alternatives to invest in gold. It can be done through physical gold or paper gold. “In the latter case, there are different ways to do it and not all of the supply is backed by physical gold, which makes it a risky product,” says Tomás Epeldegui, director of Degussa Precious Metals. When you invest in gold through financial products, you are investing in the evolution of its price, but you do not own the precious metal, and, in your opinion, you are assuming risks, such as the credit of the issuer, which are outside our control. control.
“Given that one of the main attractions of investing in this precious metal is its intrinsic value, that is something that we can only achieve when we acquire physical gold, which passes into our hands,” says Epeldegui. Another positive part of investing in Physical gold is its special taxation, as it is exempt from paying VAT, in accordance with European legislation.For this, gold ingots or sheets of a grade equal to or greater than 995 thousandths of more than two grams.In addition, in the case of gold coins must be equal to or greater than 900 thousandths of law, be minted after the year 1800, be or have been legal tender in their country of origin, usually marketed for a price not exceeding 80% of the value of the gold market contained in them, and be included in the ‘Official Gazette of the European Union’.
However, in the opinion of Xavi San Miguel, investment funds are the best investment vehicle to have exposure to gold, either through derivatives or in mining companies. And more specifically in this second option. “We prefer to buy funds that invest in gold and silver mining companies. Their behavior is like a double-edged sword, if gold or silver behave upwards, they rise much faster. And vice versa,” he summarizes. “Exposure in physical gold is extremely expensive due to transactional and storage costs, clearly it is better through derivatives or mining shares,” he adds.
Gil Luezas, on the other hand, although investment in funds seems more versatile to him, he is open to both options. “In funds there is not a great offer and we will mainly find funds that invest in gold through participating in mining companies, which, although they are highly correlated, is not exactly investing in the metal, but they always offer us great variety and flexibility in the restructuring of handbags,” he says. But if the amount to invest is not enough to take positions in a fund, you can opt for other types of entry, even “for the purchase of physical gold, so fashionable now, with companies dedicated to it that facilitate it and guard”. “It would be necessary to study each case and the client’s preferences,” he adds.
Among the funds that Luezas recommends to its clients if they want to take positions in this metal, are the and the . The first loses 9.45% in 2021, and in 2020 it fell 6.95%. While the second, with the longest history, added 1.23% this year and achieved a rise of 16.97% in 2020. In the longer term, it provides a return of 18.89% over three years and 7.15 % at five years. At 10, it loses 2.09%.
In the case of opting for physical gold, Epeldegui warns that the important thing is to go to an accredited establishment that has the seal of the London Bullion Market Association (LBMA), the most important association of market professionals who operate with gold and silver. world. Of course, the Degussa expert recommends diversifying the purchase into several pieces. “In this way, if at any given time we need liquidity and we have to sell the precious metal, we will not be forced to divest more than necessary,” he advises, insisting that it is always a good time to invest in gold if what we are looking for it is a long-term store of value. “Doing it on a recurring basis helps us average out the price,” he concludes.
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