Gold: Three main ways to get exposure to XAU/USD – Morgan Stanley

After years of trading in a narrow range around $1,200 an ounce, gold has been trading above $1,700 for the past year.  While the yellow metal is not a strategic asset class, there are tactical reasons to consider adding it now. The Morgan Stanley analyst team lays out three ways to go about it.

Physical gold

“Investors may pay a premium over the spot price of gold. The gold is physically held by a third party, not Morgan Stanley. Storage fees usually apply. Investors can also take delivery of physical gold if they want to store it themselves. In such cases, delivery fees would apply.”

Gold funds that own the metal

Some mutual funds and exchange-traded funds also offer investors exposure to gold. For those that are pure-play, their value tracks the price of gold. The fund shoulders the cost of holding physical supply and passes it along to the investors in the expense ratio. There are some drawbacks: Some gold funds are taxed as collectibles, so they don’t benefit from the lower long-term capital-gains rates for which stocks may qualify. Plus, they don’t produce any income, so the expense ratio can eat into principal every year.”

Mining companies

“Investors can get exposure through equity in companies that mine for gold, including the purchase of individual stocks or as part of a fund. ‘The mining companies tend to be more volatile than physical gold,’ says Michael Jabara, a Managing Director of Wealth Management’s fund due diligence group. Typically, the mining sector correlates with the price of gold, but individual stocks may face company-specific risks, Jabara says.”