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As an asset class, Gold is typically seen by investors as a safe-haven asset that can help to protect or generate positive returns for our investment portfolios during periods of uncertainties. Such periods would include wars, economic crises and pandemics.
The general idea behind gold being a safe-haven asset is that it is seen as a reliable store of value, uncorrelated with the financial markets and an asset that investors can easily turn to whenever other asset classes such as stocks, bonds and properties face high volatility.
To be clear, gold by itself, has also performed well as an asset class over the long term. According to State Street Global Advisors, Gold has delivered a return a 7.7% compound annual growth rate in USD terms since 15 August 1971, the day U.S. President Richard Nixon removed the USD from the gold standard.
We can see from the chart below how gold prices have increased since the year 2000.
However, what we are interested to find out is how gold has fared whenever there are periods of uncertainties. To answer this, we look at gold prices during periods of great uncertainties since the start of the 21st century.
Instead of using gold spot price, which may not be a useful reference for retail investors because 1) spot price may not necessarily be the price we can buy and sell at and 2) spot price means we need to take delivery and store the gold on our own, we will whenever possible, take gold price with reference to Gold ETFs such as the SPDR® Gold Shares traded in USD (SGX: O87).
SPDR® Gold Shares offers a cost-effective and secure way to own physical gold without taking delivery as the underlying asset (Gold) is held in trust in the vault of the custodian bank. Do note that there is an annual expense fee of about 0.40% for this ETF.
The latest crisis that has impacted our world, is none other than Russia’s invasion of Ukraine on 24 February 2022 and till date, the war is still ongoing. The S&P 500 index fell from 4,225.50 (23 February) to 4,173.11 (14 March), or down just 1.2% during the initial period of the war. After the initial dip, the index has recovered quickly and is now trading at a higher level than before the war.
During this period of uncertainty, gold prices increase from 176.68 (23 February) to 183.620 (14 March), up about 3.9%.
This may not seem much but when we look at gold prices since the start of the Ukraine-Russia war, we can see that prices have climbed up slightly, suggesting that the war may have caused a small increase in demand for gold.
Onset of COVID-19
Due to the onset of COVID-19, February to March 2020 was one of the worst periods in stock market history. From 19 February 2020 (3,386.15) to 23 March 2020 (2,237.40), the S&P 500 declined by about 33.9%.
During this period, SPDR® Gold Shares went from 151.35 (24 February 2020) to 148.54 (23 March 2020), or a decline of 1.9%. But by 27 April 2020, SPDR® Gold Shares was trading at 160.780, higher than its pre-pandemic price level (see chart below).
This suggests that gold prices were not impacted much by the pandemic and isn’t co-related with broad-based market index such as the S&P 500, which performed poorly in the first few months of the pandemic.
Global Financial Crisis
The 2008 to 2009 Global Financial Crisis was a bad one for the financial markets. From 11 August 2008 (1,305) to 9 March 2009 (676), the S&P 500 index declined by about 48.2%.
During this period, SPDR® Gold Shares went from 79.52 (12 August 2008) to 89.69 (10 March 2009), or an increase of about 12.7% during a period where the S&P 500 went down by more than 48%. This is one instance when gold showed a clear, negative co-relation with the financial markets. As markets tumble, gold saw an increase in demand and this pushed prices up.
9/11 & The U.S. War In Afghanistan
9/11 changed our world, from the way we travel to the unfortunate realization that terrorism attacks can occur anytime and anywhere in our world, even when countries are not at war. 9/11 was also the catalyst for subsequent U.S. invasions of Afghanistan and Iraq.
When we look at the S&P 500 index, prices went down from 1,133.58 (31 August 2001) to 916.07 (30 August 2002), a decline of about 19.2% in one year.
Since the SPDR® Gold Shares wasn’t launched then, we look at gold spot price during this period. In this 1-year period, gold price went up from US$274.40/Oz (31 August 2001) to US$312.75/Oz (30 August 2002), an increase of about 14.0%. This contrasts with the S&P 500 which declined substantially during this same period.
Invest In Gold via SPDR®Gold Shares
When we look at periods of uncertainties over the past two decades and how they have impacted the financial markets, one trend that we are able to observe is just how resilient gold prices have been, particularly during periods when the financial markets exhibit steep and sudden decline.
During these periods, gold can be seen as having either little or negative co-relation with broad-based market indexes such as the S&P 500. It’s for this reason that gold can be a useful tool in our portfolio for the purpose of diversification.
As an asset class, gold does not produce any income for its investors. In fact, for most investors, it would cost us money to buy and own gold. For example, if we buy physical gold, we will need to store and secure our gold bullions, which can be costly and rather inconvenient.
If you are looking to invest in gold, one convenient way to do so would be to invest in gold via the SPDR® Gold Shares, which is the largest physically-backed gold ETF in the world.
While the SPDR® Gold Shares was originally listed in 2004 on the NYSE, the ETF is also trading on other exchanges including the SGX. On the SGX, Singapore-based investors can choose to purchase in USD (SGX: O87) or SGD (SGX: GSD), depending on what’s more convenient for them. This makes it an easy way for any of us to get exposure to gold directly, without the hassle of buying and storing physical gold. In addition, Singapore investors can also purchase SPDR® Gold Shares using their CPF account via the CPF Investment Scheme (CPFIS).
Important Disclosure: Sponsored by State Street Global Advisors Singapore Limited (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell an investment. It does not take into account any investor’s particular investment objectives or investment horizon. The prospectus in respect of the Singapore offer of the SPDR® Gold Shares (the ‘Shares’) is available at https://www.spdrgoldshares.com/singapore/. The value of Shares may fall or rise. Investors should read the prospectus before deciding whether to purchase Shares. Investors have no right to request the World Gold Trust Services, LLC, State Street Global Advisors or any of their affiliates to redeem their Shares while the Shares are listed. Listing of the Shares on the SGX-ST does not guarantee a liquid market for the Shares.
For more risk and additional information, please visit https://www.ssga.com/sg/en/individual/etfs/capabilities/gold
Diversification does not ensure a profit or guarantee against loss.
Past performance is not necessarily indicative of the future performance.
Assets may be considered “”safe havens”” based on investor perception that an asset’s value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.
There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. The value of the investment can go down as well as go up and the return upon the investment will therefore variable. Changes in exchange rates may have an adverse effect on the value, price, or income of an investment. Further there is no guarantee an ETF will achieve its investment objective.
Brokerage commissions and ETF expenses will reduce returns. Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Currency exchange rates between the U.S. dollar and non-U.S. currencies may fluctuate significantly over short periods of time and may cause the value of investment to decline. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Investing in commodities entails significant risk and is not appropriate for all investors. Commodities investing entails significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.
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