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GPF Physical Gold ETC

GPF Physical Gold

One of the lowest-priced physically backed Gold ETCs on the market today.

  • Total Expense Ratio of 0.145%

  • Physically backed with allocated gold in vaults

  • Ownership tracked with Distributed Ledger Technology

Investment Case for Gold

Applications

Gold’s long history as a precious metal is highly reflective of its current usage. World Gold Council data suggest that in 2019, some 48.4% of gold demand was realised in the form of jewellery, with India and China together accounting for over 55% of the total. Investment in physical gold accounted for a further 44.2% of global gold demand, composed of net buying by central banks (15.2%), investment in gold bars (13.2%), investment in gold coins and medals (6.6%) and investment in physically-backed gold Exchange Traded Funds (ETFs) and similar (9.2%). Gold is increasingly being recognised as a risk management tool within investment portfolios. 

Industrial uses of gold account for some 7.4% of total demand and the bulk of this is consumed by the electronics industry (6.0%). However, gold also finds applications within industries as diverse as dentistry, glassmaking, aerospace and medicine. 

The Investment that Glitters

A number of reasons have been cited over the years for investing in gold including:

  • It preserves purchasing power

  • It preserves wealth

  • It provides diversification

  • It has no credit risk

  • It’s a liquid asset

Most of these properties are well-known and have been documented numerous times over the years. However, it is worth highlighting the diversification benefits of holding gold in a portfolio. According to the quarterly journal, Gold Investor, “holding 5% to 6% in gold within a well-balanced 60/40 portfolio — 60% in stocks and risk assets, 40% in cash and bonds — is optimal for helping investors reduce risk and improve risk-adjusted returns”.

Many investors don’t like gold as an investment as it pays no income stream whilst incurring storage costs. However, today we also live in a world where cash pays little to no interest and government bond yields are low-to-negatively-yielding, which makes this specific argument against holding gold a lot less relevant. It is also worth noting that according to the IMF 1, pandemics typically depress real interest rates over multiple decades, which again implies a favourable environment for investing in gold.

Price History

Gold’s price has increased 8x over the last 20 years; by contrast the S&P 500 has only increased by approximately 2.5x during the same period. Looking at the chart below, we can see that one of the steepest price increases for gold was the 4-year period right after the Great Financial Crisis of 2008. During this period the FED unleashed QE1 and QE2 to support the financial system and was followed swiftly by various other stimulative central bank and government policy actions across the world.

The crisis of 2020 has equally rattled economies and has driven central banks and governments across the world to loosen monetary and fiscal policies to unprecedented levels. According to Reuters 2, governments and central banks pumped $15 Trillion of stimulus into their economies after the first wave of the pandemic. With the second wave upon us and restrictions and lockdowns increasing on businesses and consumers, we can expect more stimulus, which should be very bullish for real assets like Gold.

Properties

Gold is a chemical element with the symbol Au (from Latin: aurum) and atomic number 79, making it one of the higher atomic number elements that occur naturally. In its pure form, it is a bright, slightly reddish-yellow metal. It is very dense, yet soft, with a low melting point. It is one of the least reactive chemical elements, is highly resistant to corrosion and is often referred to as a ‘noble’ metal. Gold is a very good conductor of both heat and electricity and is the most malleable of all metals: one ounce of gold can be beaten into a sheet of 9 square meters. Gold is also very ductile: it can be drawn into a wire of single-atom width, and then stretched considerably before it breaks.

Occurrence

Gold is a relatively rare element, which gives rise to its status as a ‘precious’ metal. However, its lack of chemical reactivity means that gold can often be seen in free elemental (native) form, as nuggets, flakes, veins or grains, in rocks and in alluvial deposits. It also occurs naturally alloyed with native silver (as electrum) and also more rarely alloyed with copper (auricupride), lead (novodneprite), mercury (weishanite) and palladium.

According to the World Gold Council, some 3533.7 tonnes of gold was mined in 2019. The principal producing countries were China (10.8%), Russia (9.3%), Australia (9.2%), the United States (5.7%), Canada 5.2%, Peru (4.1%), Ghana (4.0%) and South Africa (3.3%). Leading gold mining companies include Newmont, Barrick Gold, AngloGold Ashanti, Polyus Gold, Kinross Gold and Newcrest Mining.

History

Gold is considered one of the ‘metals of antiquity’ and its discovery remains a mystery. However, caves thought to have been occupied by humans c. 40000 BC have been found to contain small amounts of native gold. However, these early discoverers of gold certainly didn’t fully appreciate the significance of their find. The earliest gold artifacts - small beads intended for personal adornment - have been uncovered at the Varna Necropolis in Bulgaria are thought to date from 4500 BC. Gold was thus probably the first metal used by humans. For much of gold’s history (c. 600 BC – 1933 AD), gold was used as legal tender in coinage.

Footnotes

1 - “The Long Economic Hangover of Pandemics”, June 2020, Oscar Jorda, Sanjay Singh, Alan Taylor

2 - “$15 trillion and counting: global stimulus so far”, May 11, 2020, Tommy Wilkes, Ritvik Carvalho

Graphs