Fund Focus: how to hold gold

Remember when gold was seen as a safe-haven asset?

That feels like something of a distant memory right now: the (US dollar) gold price has dropped from $4,286 to around $4,000 in the space of a month, offering no respite for investors in the midst of a tech (and bond) sell-off.

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Gold has not had a great record as a safe-haven asset in recent times: it struggled when conflict kicked off in the Middle East in March, possibly thanks to the fact it had behaved more like a momentum asset last year.

There are many theories about what might weaken the gold price – including that, when things like equities sell off, certain investors might ease up on their gold positions as a source of liquidity.

Investors might also want to return to a video interview I did with a gold fund manager a few months back, where he shared some pretty forthright views about what actually does influence the price.

Whatever you believe, the last month does remind us that perceived safe havens cannot always be relied on. 

If we look a little deeper, there’s also a reminder that the way we hold gold (and certain other assets) can have a huge bearing on the kind of returns we might receive.

How to hold gold

Holding physical gold can come with tax advantages, but it also brings headaches – including the dilemma of how to safely store it. 

And the funds universe gives us many ways to get exposure.

To keep it incredibly simple, just buy an exchange-traded fund (ETF). The Invesco Physical Gold ETC GBP (LSE:SGLP) will do, as will its rival, iShares Physical Gold ETC GBP (LSE:SGLN). 

Each fund is massive, meaning the shares should be pretty liquid and cheap to trade, and each one charges a fee of 0.12% a year.

Perhaps more importantly, each fund gives you exposure to the spot gold price – meaning you will benefit if it rises and suffer if it falls. 

It’s the simplest way to take gold exposure, and would mean you do feel the benefit if the metal starts to behave like a safe haven in a stock market sell-off.

If this feels like a lengthy explanation of a basic concept, I outline this approach only to remind you of how it differs to what else is on offer. 

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A lot of funds, both active and passive, instead buy shares in companies that mine gold, silver and other metals (or commodities). 

These are a very different kettle of fish to a physical gold ETF.

The big difference here is volatility. A fund invested in mining shares will often see substantial gains when the gold price is high, notably outpacing the price itself. 

But things get especially painful when the price falls.

Let me give you just one example here. 

The WS Ruffer Gold C Acc (B8510Q9) fund, which has recently been invested in companies such as Equinox Gold Corp Ordinary Shares Class A (TSE:EQX), Westgold Resources Ltd (ASX:WGX) and Alkane Resources Ltd (TSE:ALK), has tended to do extremely well when the price is up – and then fall out of bed when things turn.

To illustrate that let’s look at the numbers. 

The Ruffer fund has returned a whopping 234% over the five years to 23 October 2026, well beyond the 129% return from the Invesco Physical Gold fund. 

But the last month has seen the Ruffer fund lose around 12.5%, more painful than the roughly 6% loss for the Invesco ETC. 

While a month is a woefully short time period, it illustrates the kind of volatility you can end up dealing with.

As such, it’s worth remembering that funds invested in gold mining equities are a riskier, more gung-ho option than a fund that simply tracks the gold price.

Physical versus shares

On a similar note, there are other parts of the investment universe where you can choose to either invest directly into an area, or invest via related equities. 

The two paths can give you very different outcomes.

One area is infrastructure, where you can either buy the shares of investment trusts that buy such assets directly or buy shares in infrastructure companies, for example using something like the iShares Global Infras ETF GBP H Acc (LSE:INGH) (or an active fund).

Another is property, where there are trusts that directly buy buildings and other funds, such as TR Property Ord (LSE:TRY), that favour shares.

And one less widely discussed example is private equity, where you can back an investment trust with direct exposure or either buy shares in listed private equity companies or an ETF that focuses on them – such as the iShares Listed Private Eq ETF USD Dist (LSE:IDPE).

Each area can have its quirks, but a few broad considerations are worth weighing up.

First, the “direct” options can end up giving you some very attractive yields right now. 

Infrastructure yields are very high, versus just 2% or so from the ETF I mention.

And while TR Property’s yield is close to 6%, it’s still lower than what’s on offer from the handful of remaining UK commercial property trusts.

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Otherwise it’s useful to talk about liquidity. While investment trust shares can be traded on the secondary market, their underlying assets are still very illiquid in areas like these. That creates problems for the various trusts in areas like infrastructure that want to sell assets or wind up.

Having said that, funds that invest in shares rather than direct assets can sometimes experience greater volatility, meaning bigger ups and downs. 

As with gold, the “shares” route can be a bit racier, although that isn’t always the case.

As is often the case, investors have a wealth of options when it comes to the funds that access different parts of the market. 

But understanding how those approaches differ should be a key part of your research process.