Hedge fund manager Michael Burry has turned his attention to an investment as old as time itself: physical gold. According to Scion Asset Management's recent filing with the Securities and Exchange Commission, the firm holds a Canadian physical gold fund.
Scion's form 13-F is a required quarterly report for firms with at least $100 million in assets under management, providing insights into the company's securities holdings as of March 31. The most notable acquisition is Sprott Physical Gold (PHYS), a closed-end fund registered in Canada.
The largest physical gold exchange-traded fund, SPDR Gold Shares (GLD), has seen its price increase by over 19% in the past three months, surpassing the S&P 500's gain of just over 6% in the same period. This prompts questions: why did Burry acquire a physical gold fund in Q1? Is now a good time to invest in gold? And which exchange-traded funds offer exposure to the price of gold?
Why Would Burry Invest in Gold in 2024? Several factors contribute to the potential allure of gold investment for Burry and other investors, even with the passing of nearly two decades since the subprime mortgage crisis. One rationale is that physical gold offers a hedge against inflation. The purchasing power of currencies has been eroded by rising prices, leading some investors to see gold as a safeguarding asset whose value tends to rise over time.
Another factor driving demand for safe-haven assets such as gold are economic uncertainty and ongoing global tensions including the conflict in Ukraine and geopolitical tensions in Israel/Palestine. When faced with these conditions, investors often flock to perceived safer assets like gold to preserve their wealth. Furthermore, geopolitical instability around the world fosters a flight to safety among investors.
The value of gold is sometimes seen as inversely related to interest rates, especially for currency exchange purposes. When U.S. interest rates fall, investors may view the dollar less attractively, potentially causing its value to decrease, making gold, priced in dollars and thus likely cheaper for purchase by foreign investors, more desirable overall.
The ongoing central bank purchases of gold are an additional support factor. Central banks' substantial demand creates continuous buying power which supports the price of gold.
When interest rates fall, fixed-income instruments like bonds do not offer as high returns to their buyers anymore. Therefore, these investments become less appealing in comparison to alternatives offering higher return and yield potential; here lies further attractiveness for some investors who prefer investing in physical gold instead because it offers no regular income and makes gold preferable when yields on traditional securities fall.
How Do Physical Gold ETFs Work?
Physical gold exchange-traded funds (ETFs) are a type of investment vehicle designed to track the price movement of gold as closely as possible by holding actual gold bullion or bars within specially secured vaults. They offer investors exposure to gold without requiring possession of physical gold coins or other precious metals. By linking investor cash inflows and outflows with gold acquisitions in the secure vault, these funds guarantee consistent investment coverage equivalent to owning real physical gold.
Investors buy shares rather than storing actual gold themselves; their contributions are used proportionally to increase gold reserves managed by the ETF, according to their specific holdings within portfolios and redemptions (when investors' desire for cash increases). Conversely, as gold is demanded further and therefore also has to be sold to meet higher redemption demand, net selling pressures increase causing respective reductions in gold inventory and a corresponding decline in prices.
Top Physical Gold ETFs by Outstanding Market Value
Below are the top physical gold ETFs by market capitalization based on May 15th data for the same quarter, showing some top ranked mutual funds for investors considering investment opportunities in physical commodity-backed securities. The figures are current but subject to fluctuations due to ongoing trading and shifting investor attitudes towards different stocks.
GLD
• Expense ratio is 0.40%
• AUM $63.2 billion
• Return on Investment (3-month) : 18.98%
IAU • Expenses $25 • Fund Assets Managed: $28.9Billion • ROI per period : 18.98% IAGM • Fund expense ratio is a relatively low rate of0.10% Assets Under Control (Current):$7.3 billion 3-month Return on Investment per period:19.04%
How Do We Expect the Gold Price to Evolve in 2024? Investors need to keep a close eye on potential economic indicators such as inflation concerns, interest rates cuts, U.S. dollar, geopolitical tensions including those between Ukraine or the Middle East to gain insights into price trends of physical gold.
If these factors persist and remain unchanged over the course of upcoming quarters then further appreciation for prices is likely as investors continue buying it due to its low volatility rate while being at times volatile commodity.
Gold remains a unique form investment providing safety during uncertain economic conditions. Those not keen on storing physical precious metal for themselves prefer convenient options for exposure like gold ETFs offering ownership equivalent to the value of owning gold itself.
But always conduct extensive research before making new monetary decisions on long or short investments so better understanding each aspect might result in well-informed choices regarding optimal use of funds allocated toward achieving your long-term financial goals.