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Posted by Purpose Investments on Mar 26th, 2022

Going for Gold: The Investment Case for Gold Today


• Why the current macro environment supports the case for owning gold.

• The appropriate allocation and its long-term historical impact on a traditional portfolio of stocks and bonds.

• The easiest, cheapest way to invest in gold.

For centuries, gold has been viewed as a store of wealth and a safe-haven asset for protecting against economic and market turmoil. While gold’s performance in 2021 was disappointing, recent geopolitical turmoil and inflation concerns have reminded investors of its value as a portfolio diversifier, inflation hedge, and store of value.

Is gold a good buy now?

The current macro backdrop is very supportive for gold:

  • Inflation is here to stay: This environment benefits hard assets, such as gold, which are negatively correlated to inflation unlike other assets. Recently, gold has lagged other commodities in responding to increasing inflation, indicating that it’s undervalued relative to other inflation-sensitive assets.

  • Weak U.S. dollar: Exposure to a commodity with a fixed volume is attractive especially when that commodity historically has an inverse correlation to USD (its benchmark currency).

  • Lower real rates: Gold often performs best when the difference between nominal rates and inflation is falling, or even negative as it has been YTD.

Complementing a traditional portfolio with exposure to gold proves to be beneficial, both on upside returns and downside protection. This is largely because of its diversification properties and low correlation (in some cases, even negative correlation) to other asset classes.

Correlations to gold

Why is physical gold better than paper gold?

The rise of ETFs sparked a debate about whether investors should own physical gold or the paper claims that exist in many gold ETFs.  We firmly believe the way to go is physical gold. If you’re using an investment in gold at least in part as a crisis hedge, you should consider the dependencies – or counterparty risk – involved in the underlying exposure.

For example, exposure based on futures contracts may closely track physical pricing in most scenarios, but ultimately, the number of futures contracts outstanding may materially exceed the amount of gold available for delivery. In this scenario, the investor’s claim on actual gold bullion may be tenuous at best. If upon settlement, the demand exceeds supply, there will be a material price dislocation between the paper and physical markets in favour of the latter.

And even in the physical world, the choice of custodian may really matter in a desperate financial crisis. Many funds use banks and outsourced storage options, where access to gold may ride on the solvency of those institutions. This is in contrast to a government-backed facility such as the Royal Canadian Mint, which is insulated against systemic risk in the financial sector.

We believe the right balance of security and convenience is to back units with real physical bullion, stored on a fully allocated and segregated basis where no other party can mount a legitimate claim on the asset.

While these scenarios may seem remote, they reflect the times when gold is most likely to really shine as an asset.

Why Purpose? Why KILO?

We designed Purpose Gold Bullion Fund (KILO) by carefully considering what investors need and want in a gold product – ease, efficiency, low-cost, and the ability to own physical gold rather than paper claims to gold. Purpose Gold Bullion Fund allows you to own the physical bullion without having your own vault. We optimized this by:

  • Safely segregating, storing and fully allocating gold at the Royal Canadian Mint.

  • Giving our investors the option to redeem the physical bullion (1 kg gold bars or more), and have it securely delivered.

  • Offering an easy-to-trade ETF on the Toronto Stock Exchange or as a mutual fund.

  • Pricing it fairly with the lowest management fee for a physical gold fund in Canada.

Purpose Gold Bullion Fund - Fund Information

All data sourced from Bloomberg unless otherwise noted.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Fund mentioned in this story