Medal metals have performed well, but face hurdles

As London hosts the Olympic Games this summer, both investors and athletes who have been ‘going for Gold' since Beijing stand to be well rewarded.

The spot price of both Gold and Silver has risen significantly since the Beijing Olympics Opening Ceremony on August 8, 2008.  The S&P GSCI Gold Spot Index climbed 87.64% in US dollar terms from August 8, 2008 through to July 27, 2012, while the S&P GSCI Silver Spot Index rose 78.74%.  Copper (Bronze is a Copper alloy) has lagged, however; the S&P GSCI Copper Spot returned just 1.56% for the almost four-year period.

Investors seeking exposure to Gold via a managed fund have several options from which to choose.  For instance, Investec Global Gold has 87% of its assets in Gold, BlackRock Gold & General has a 77.2% exposure while Smith & Williamson Global Gold & Resources has 61.30% in Gold, according to FE Analytics. They returned 31.40%, 34.98% and 57.67%, respectively, from August 8, 2008 through to July 27, 2012.

Investec Global Gold has an FE Risk Score of 176, compared to 160 for BlackRock Gold & General and 183 for Smith & Williamson Global Gold & Resources.  This compares to an FE Risk Score of 100 for the FTSE 100 Index and illustrates that funds investing in Gold have shown considerable volatility despite the yellow metal's generally upwards trajectory.

Investors seeking a purer exposure could turn to ETFs.  Investors in ETF Securities Physical Gold, ETF Securities Gold Bullion and iShares Gold Trust would have doubled their money since the last Olympics.  They returned 127.58%, 127.63% and 127.13% in sterling terms from August 8, 2008 to July 27, 2012, according to FE Analytics.  Silver ETFs have performed almost as well. ETF Securities Physical Silver returned 115.88% since the Beijing Olympics.

Rob Gleeson, Head of FE Research, explained: "ETFs providing exposure to Gold bullion outperformed managed funds by such a large extent over the past four years because the funds invest in equities, such as Gold mining companies and producers like Goldcorp.  In times of market uncertainty physical Gold usually performs better than equities, which suffer from a flight to safety."

Exposure to Silver and Copper among funds is harder to track, although mining companies feature in the top holdings of a range of popular funds.  BlackRock Gold & General has considerable exposure to Silver through a 6.7% stake in miner Fresnillo, its second largest holding.  Fresnillo is also a significant holding for Elite Charteris Premium Income (5.72%) and Smith & Williamson Global Gold & Resources (2.6%).  SF Webb Capital Smaller Companies Gold holds 4.14% of its assets in Great Panther Silver, according to FE Analytics.

Copper miners feature among the top 10 holdings of at least five funds.  JPMorgan Global Mining has 4.2% in Freeport-McMoran Copper & Gold, while JPMorgan Natural Resources and CF Richmond Core each hold 2.6% of their assets in the company.  Meanwhile Oceanic Australian Natural Resources and Lazard Global Equity Income hold 3.4% and 2.7%, respectively, in Southern Copper Corp.

Rob Gleeson, Head of FE Research, said: "Although returns from Gold and Silver have trended upwards over the past four years it has been a bumpy ride with plenty of volatility, as the FE Risk Scores show.  Investors should remember that Gold is primarily a crisis asset; it produces no income and is not demanded in sufficient quantities as a raw material to drive prices.  What it does do well is to make people feel better when other assets seem uncertain. With Gold already close to an all-time high, you have to wonder where the growth is going to come from? How much worse can things really get?"