By Kira Brecht
The price of gold has skyrocketed 28 percent since the start of 2016, propelling the precious metal to its current price of $1,358 an ounce. Some investors have turned to gold as a safe haven amid stock market jitters and as global central banks turn to negative interest-rate policies.
More recently, the surprise Brexit vote, in which the UK chose to leave the European Union, spurred another round of gold buying.
Gold is viewed as a safety play and a hard asset that investors turn to during financial, political or even military uncertainty or conflict. It is considered by some as an alternative currency that is not vulnerable to manipulation or devaluation by global central banks.
Gold acts as an insurance policy, a hedge against equity market declines and a vehicle to protect and grow wealth, says David Beahm, president and CEO of Blanchard and Co., a precious metals investment firm in New Orleans.
"This paid off for gold investors after the 2008 global financial crisis," Beahm says.
There are several ways for investors to gain exposure to gold, including gold mining stocks, gold exchange-traded funds and gold coins or bars. For investors looking to make a pure play on the price of gold, there are potential advantages to physical ownership in the form of coins or bars over paper assets like stocks or ETFs.
ETFs and mining stocks do not always follow the price of gold. "There are sometimes outside forces at play that can move the price of paper investments at different rates and in different directions than the spot price of gold," Beahm says. "Gold could be performing strongly, and a mining company's stock may not reflect the commodity's performance."
For example, mining stocks can be negatively affected by workforce strikes, political strife in the countries where miners operate, company management and accounting issues. Another advantage to physical ownership is that there is no counterparty risk. Physical gold is one of the only primary asset classes that is not simultaneously someone else's liability, says Peter A. Grant, chief market analyst at USAGold.
"Positions in ETFs and futures are more a bet on price activity, rather than actual gold ownership," Grant says.
Some investment analysts are anti-gold, saying it offers no returns or dividends and should be avoided. The current wave of negative interest-rate policies may be changing those thoughts, Beahm says.