1 Gold ETF to Consider Before the Fed’s First Rate Cut

Earlier this week, the spot price of gold hit a record high of $2,481 per ounce. Gold is a precious metal that is arguably the world’s oldest currency. Considered a store of value and a hedge against inflation, the yellow metal has generated considerable wealth for long-term investors.

Should You Invest in Gold Now?

Gold (GCQ24) offers investors portfolio diversification and reduces overall risk. Typically, gold thrives during economic downturns because it is considered a safe haven asset. Additionally, gold has an inverse relationship with interest rates, making it all the more attractive at this time.

With inflation slowing, the Fed is expected to begin cutting interest rates in September, which should shift capital away from fixed income securities like bonds and toward asset classes like stocks and gold. According to the CME FedWatch tool, markets are pricing in a 98.1% chance of a rate cut in September, making gold a top investment choice in July 2024.

Additionally, gold prices have hit record highs this year due to strong demand from central banks like India and China, as well as rising geopolitical tensions in the Middle East. Central bank gold purchases are at their highest level in nearly 60 years, according to a UBS report.

In a note to investors, UBS explains: “As some central banks now question the safety of holding USD and EUR denominated assets (following the financial and debt crises and, more recently, the war in Ukraine), many are choosing to fill their reserves with gold.”

Another long-term factor that could boost gold is the possibility of the country launching a gold-backed currency as developing economies seek to move away from a dollar-backed financial system. Finally, investment banks such as Bank of America (BAC) and Citi (C) expect gold prices to hit $3,000 an ounce in the next 12 months.

Finally, if the US economy enters a recession and stock markets collapse, we can expect bullion prices to rise significantly again thanks to safe-haven purchases.

Fundamentally, gold continues to validate its role in the global financial system and should be part of your investment portfolio.

How to invest in gold?

A simple and inexpensive way to invest in gold is to buy shares of the Sprott Physical Gold Trust ETF (PHYS). The PHYS exchange-traded fund (ETF) was launched to invest and hold all of its assets in physical gold bullion. It offers a convenient alternative for investors who want to own physical gold, without the hassle of investing directly in physical bullion.

Gold purchased by PHYS is held by the Royal Canadian Mint, a federal Crown corporation of the Canadian government. This means that investors are protected from financial loss in the event of bankruptcy.

PHYS also offers non-corporate U.S. investors a tax advantage: capital gains are taxed at between 15% and 20%, compared to the 28% “collectible” rate applied to other precious metals ETFs.

Over the past 10 years, the PHYS ETF has returned 78% to shareholders, well below the S&P 500 Index ($SPX). This year, however, PHYS is up 16.4% year-to-date, narrowly outperforming the SPX.

With total assets of $7.78 billion, the ETF holds 3.15 million ounces of gold, with a management expense ratio of 0.41%.

As of the date of publication, Aditya Raghunath did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data contained in this article are provided for informational purposes only. For more information, please see Barchart’s disclosure policy here.