Gold’s Rally: Understanding the Drivers and Exploring Investment Options

Several factors may be contributing to the current upswing in gold prices. Historically, gold has been viewed as a safe-haven asset, especially during periods of elevated market stress or economic uncertainty. Some retail investors may turn to gold as a store of value when equity markets become volatile or inflation concerns rise.

However, recent demand may have been bolstered by central banks. Amid broader global trends — such as de-dollarization and currency diversification — certain central banks have recently increased their gold reserves. This trend may be related to a decrease in reliance on the U.S. dollar in foreign exchange reserves, particularly as the dollar index continues to trend downward.

Additionally, ongoing geopolitical tensions and trade concerns may have contributed to elevated demand for assets that may perform more defensively in turbulent environments. In this context, institutional and retail investors may see gold as a strategic asset.

For those seeking to establish, maintain or increase portfolio resilience during uncertain times, gold exposure may provide a hedge against instability, while potentially enhancing long-term diversification.

One way to get gold exposure is via exchange-traded products (ETPs) like exchange-traded notes (ETNs), exchange-traded commodities (ETCs), and exchange-traded funds (ETFs). Investors looking to simply track the price of spot gold may wish to look to ETPs that invest in gold futures, which can be a cost-effective alternative, as opposed to purchasing gold outright. ETP investors can buy and sell their shares on a financial exchange the same way they can with stocks.

For investors looking to combine the access that ETPs bring and the tangible feel of investing in gold bullion, they could consider products available from providers who have a physical gold fund that trades on a financial exchange with the option for investors to exchange their shares for actual gold bullion.

Another option that investors can consider to add exposure to gold miners is through gold stocks or gold ETFs. When demand for gold rises, so might the need for ancillary services that support gold such as mining and exploration. History has shown that gold miners can move towards the upside when the price of gold rises, but the reaction is typically delayed. This may allow investors to potentially position themselves to attempt to capture the upside ahead of the move.

In spite of the latent move that gold miners can make relative to the spot price of gold, the same demand drivers that exist for gold also exist for miners. That said, gold’s future demand might be a factor in determining if miners can sustain their potential upside.

Like all investments, gold carries risks and should be evaluated within the context of broader financial objectives, time horizons, and risk tolerance. While it can play a valuable role in enhancing portfolio diversification and potentially mitigating downside risk, gold’s performance may be influenced by a range of unpredictable factors, including macroeconomic policy shifts and changes in investor sentiment.

It’s also important to note that gold does not generate income, such as dividends or interest. As such, its role is typically as a store of value or hedge, rather than a growth or income-generating asset.

There is no one-size-fits-all approach to gold investing. Whether you’re seeking to hedge against volatility, diversify an equity-heavy portfolio, or attempting to preserve wealth over time, incorporating gold can be considered as part of an investment strategy. Investors are encouraged to do research and use tools such as Qtrade’s Portfolio Analytics to help assess how gold exposure fits into their overall portfolio.