Investing in Gold

Gold is rising and rising. Did I miss something?

Gold pays no interest or dividends . Nevertheless, it almost always makes sense to add gold to your diversified portfolio .

A short excursion into the past

At one time, currencies were backed by gold, which was also called the ' gold standard', and US dollar notes could be exchanged for gold at a fixed price. This was specifically mentioned on the dollar note (marked in red);

But on August 15, 1971, President Nixon announced that the gold standard would be suspended as a 'temporary' measure 🙂 That was the beginning of the central banks' 'wild' money printing .

An assessment of the return on gold can therefore only begin in 1971. Since then, the price of gold in Swiss francs has increased more than tenfold with an average return of just under 5% in Swiss francs .

However, gold is not an investment that rises steadily . Gold often performs well when stocks suffer, as in the 1970s and 2000s, which were also characterized by high inflation. This makes gold an excellent investment for stabilizing the performance of an overall portfolio .

Source: https://www.morningstar.com/features/what-prior-market-crashes-can-teach-us-in-2020

And how does it look today?

Since 2020, gold has also left the Swiss Market Index far behind.

The driving force behind the recent gold rally was not financial investors, who mainly participate in the gold market via gold ETFs, but central banks such as those in China and India . They have increasingly bought gold instead of US government bonds, thereby continuously reducing their dependence on the USA.

Many other central banks are following the example of China and India, precisely out of fear of having their currency reserves confiscated or frozen, as was and is the case with Russia.

Gold ETFs, i.e. exchange-traded funds that invest in gold, have lost volume since 2022. In our view, this is mainly the result of the good returns that have been achieved in the stock market. However, a correction in the markets could reignite interest.

As seen above, gold is an excellent stabilizer when added to a stock portfolio. With high national debt , persistent inflation , loss of confidence in central banks and increasing conflicts, a sustained gold rally would certainly not be a surprise. The addition of gold could not only minimize portfolio risk but even improve the performance of the overall portfolio .

How much gold makes sense?

In our view, gold, like Bitcoin, belongs in a diversified portfolio. Depending on your risk tolerance, we believe that 10% to 15% should be invested in gold. In the past, traditional investments such as stocks and bonds were often included in the portfolio because they pay dividends and interest. But in the current environment, it makes sense to invest in instruments that do not generate passive income. In addition to gold, these include silver and, of course, Bitcoin.

How do I buy gold?

Buying gold physically, i.e. in gold coins or bars, is often very complicated and usually quite expensive. However, there are enough ETFs that invest physically in ETFs at low costs.

In Europe, due to diversification rules, ETFs cannot invest exclusively in physical gold and the European gold funds therefore have a different structure (they are so-called ETCs), do not hold gold directly but through banks as counterparties and are thus subject to counterparty risk.

Fortunately, this is handled differently in Switzerland, which is why we prefer Swiss ETFs for investing in gold. You can find out whether it is a Swiss instrument by looking at the instrument's ISIN number. For Swiss products, this always starts with CH .

Which currency class of the gold ETF makes the most sense? The costs of currency hedging

The gold ETFs can be purchased in various currencies. Whether you buy the ETF in US dollars (USD) or Swiss francs (CHF) makes no difference to your returns. So buy the ETF in CHF, as this means there are no fees for exchanging CHF into USD (unless you already have USD in your account and want to invest it).

In addition, gold ETFs usually offer so-called CHF hedged classes, in which exchange rate fluctuations between the USD and the CHF are hedged. This sounds nice at first glance, but makes no sense at all with gold. It is extremely expensive and in the long term, it is only good for the ETF provider and bad for you as an investor. To illustrate this, we compared the performance of the hedged currency class in CHF in red ( ZKB Gold ETF H (CHF), CH0139101601 ) and purple (UBS Gold ETF UBS ETF (CH) Gold hedged CHF, CH0106027128) with the non-hedged currency class in CHF in yellow ( ZKB Gold ETF A (CHF), CH0139101593) and blue (Raiffeisen ETF Solid Gold Ounces A-CHF, CH0134034849) over the last 10 years:

Our tip: Buy a Swiss Gold ETF in CHF

Choose a Swiss ETF (with an ISIN number starting with CH) that is directly backed by gold.
There are three providers in Switzerland. The ZKB Gold ETF is the most popular but also the most expensive ETF. In addition to its 'traditional' gold ETF, Raiffeisen also offers the ETF - Solid Gold Responsibly Sourced & Traceable, an ETF that invests exclusively in physical, responsibly sourced and traceable gold. UBS is also involved, but does not have an ETF class in CHF that is not hedged.
For most people, a CHF class makes the most sense. Of course, you can also buy all three ETFs in USD and without currency hedging. But that only makes sense if you already have USD, as exchanging CHF for USD is usually expensive, or if you want to buy the UBS ETF in USD.
You can safely do without a hedged class (often marked with H or Hedged), as currency hedging of gold makes no sense in the long term and only reduces the return.
You can find a good overview of the different gold ETFs with more information on JustETF .

Where can I invest in a Swiss gold ETF

You can buy gold ETFs through your bank or broker, a digital asset manager or in your Pillar 3a. If you open an account, you can benefit from the advantages of our vouchers and support us in the process.

Among the banks and brokers, Swissquote (COUPON CODE: MKT_STUZZ) DEGIRO or Saxo are among the cheapest providers.

Digital asset managers offer the following options:

Findendent : The investment strategy 'Cautious' invests 10% in gold ETFs and the investment strategy 'Considerate' invests 5% in gold ETFs. The other strategies have no allocation to gold, but you can create your own strategy in the app. (VOUCHER CODES: STUZZ3000 or STUZZ20)
Finpension does not use gold ETFs in the standard investment solutions 'Global', 'Switzerland' or 'Sustainable'. However, you can also put together your own strategy and invest in a gold ETF. (VOUCHER CODE: STUZ13)
Truewealth does not allocate gold in its sustainable portfolios. The global portfolios do not have any allocation to gold by default, but you can adjust this manually in the commodity segment.
Selma is currently not allocating gold in her 3a portfolios. (VOUCHER CODE: STUZZ)

With the Pillar 3a solutions you have the following options:

Finpension does not use gold funds in the standard investment solutions 'Global', 'Swiss' or 'Sustainable'. However, you can also put together your own strategy and invest in a gold fund. Incidentally, instead of ETFs in Pillar 3a, Finpension uses index funds, which have tax advantages in addition to the Swiss structure. (VOUCHER CODE: STUZ13)
Truewealth does not allocate gold in its sustainable portfolios. The global portfolios do not have any allocation to gold by default, but you can adjust this manually in the commodity segment.
Regardless of your risk profile, Selma's portfolios always have at least a 5% share of precious metals (4% in gold and 1% in silver). This share can be increased to up to 25% if all stock markets are valued too expensively according to the "Shiller CAPE Ratio". You can find out more about this adjustment mechanism directly on her website . (COUPON CODE: STUZZ)

You can also find further information about the providers in our blogs .

Please note that you are responsible for your own investments, but we are happy to provide you with information so that you can make the best decisions for yourself.

Happy investing!

Jeff Haindl & Reto Rauschenberger

👉 Visit our STUZZ4FREE voucher page. By redeeming vouchers you benefit and support our work at the same time. 🤗

Investing in Gold – a must?