Gold GBP

masonic

Altior said:

Hedged gold means that you're negating the currency gamble, it's a pure gold play. Which is the idea of buying and holding gold, I'd have thought.

The table presented is just gold's performance in the chosen currency. There are popular ETFs that trade in GBP vs USD, but they are not hedged, and are physically backed by the yellow stuff. They deliver exactly the same performance, but the USD version will involve forex when you buy and sell it.

A GBP-hedged gold fund would have fallen in value during 2022.

Albermarle

Maybe worth pointing out (again), that against the two other major trading currencies of the world (Yen and Euro), the Pound has been quite stable over the last 12 months. Down a bit against the Euro and up a bit against the Yen.

So it is actually the Dollar that is strong against all currencies, not just the Pound.

 

Altior

masonic said:

Altior said:

Hedged gold means that you're negating the currency gamble, it's a pure gold play. Which is the idea of buying and holding gold, I'd have thought.

The table presented is just gold's performance in the chosen currency. There are popular ETFs that trade in GBP vs USD, but they are not hedged, and are physically backed by the yellow stuff. They deliver exactly the same performance, but the USD version will involve forex when you buy and sell it.

A GBP-hedged gold fund would have fallen in value during 2022.

Yes I know. Gold is priced in USD, so if you buy an unhedged etc priced in the domestic currency, you're speculating on two things, gold and currency movement. No different to buying aapl directly. If aapl was flat for the year you'd still have unrealised gain due to the GBP to USD movement. 

People hold gold for different reasons, but if it's just theoretical ballast for diversity then ideally you'd want to take the currency gamble out of it. The typical flight to the dollar has taken place during global economic uncertainty, it could easily flip the other way over the medium to long term. 

The hedged etc reflects the true movement of the gold spot price (replicated in domestic currency). Not exactly of course, because hedging is not always perfect. 

masonic

Altior said:

masonic said:

Altior said:

Hedged gold means that you're negating the currency gamble, it's a pure gold play. Which is the idea of buying and holding gold, I'd have thought.

The table presented is just gold's performance in the chosen currency. There are popular ETFs that trade in GBP vs USD, but they are not hedged, and are physically backed by the yellow stuff. They deliver exactly the same performance, but the USD version will involve forex when you buy and sell it.

A GBP-hedged gold fund would have fallen in value during 2022.

Yes I know. Gold is priced in USD, so if you buy an unhedged etc priced in the domestic currency, you're speculating on two things, gold and currency movement. No different to buying aapl directly. If aapl was flat for the year you'd still have unrealised gain due to the GBP to USD movement.

This isn't true. It doesn't matter which currency you buy in. You will get identical results. You'll either have a gain in GBP units, or the same gain when you convert the value of your USD units to GBP.

Altior said:

People hold gold for different reasons, but if it's just theoretical ballast for diversity then ideally you'd want to take the currency gamble out of it. The typical flight to the dollar has taken place during global economic uncertainty, it could easily flip the other way over the medium to long term.

There is no currency gamble if you buy SGLN (priced in GBP) or IGLN (priced in USD). Neither of these are hedged. Both of which result in you owning a security with equivalent value to a direct holding in the metal.

Altior said:

The hedged etc reflects the true movement of the gold spot price (replicated in domestic currency). Not exactly of course, because hedging is not always perfect. 

Not true. The unhedged ETC reflects the true movement of the gold spot price as it is as close as you can get through a trading account to actually owning the gold. If you add hedging, then this will cause the performance of the ETC to differ, perhaps significantly, from the gold spot price in the currency in question.

Type_45

Albermarle said:

Maybe worth pointing out (again), that against the two other major trading currencies of the world (Yen and Euro), the Pound has been quite stable over the last 12 months. Down a bit against the Euro and up a bit against the Yen.

So it is actually the Dollar that is strong against all currencies, not just the Pound.

 

Bingo.

The strong dollar against all other currencies means the world is scrambling for safe havens.  The dollar is also rising at the same time as commodities.

Altior

This is XGDG (GBP hedged) mapped on to XGLD. 

The hedged etc mirrors the pure gold USD etc, which is what I'm getting at. Obviously you're exposed to the fx rate when buying SGLN and selling it, if you don't already hold the $ and turn it back into GBP upon the sale.

If the tide turned, and USD tanked vs GBP, it wouldn't impact the hedged etc price as I understand it. Though of course, the gold price in of itself would most likely be influenced by USD tanking. 

Altior

In my view, using the aapl example again, you're by default partially speculating on the currency movements by purchasing $ denominated equity, albeit likely unintentionally.

You could buy $100 of aapl for £80 and sell $100 of aapl for £100. The underlying asset hasn't performed, it is static, but you've profited in your domestic currency due to the fx fluctuation. It could easily work the other way, and you make a loss. 

In my view, arguably, by hedging you are gambling on the currency movement in a sense, but only that currency doesn't move in your favour, and you lose out on the gain. But if you're going to maintain a gold etc as part of, for example a butterfly portfolio for several decades, preference for me is to remove the currency element. I acknowledge that others may view it differently. 

masonic

Altior said:

This is XGDG (GBP hedged) mapped on to XGLD. 

The hedged etc mirrors the pure gold USD etc, which is what I'm getting at. Obviously you're exposed to the fx rate when buying SGLN and selling it, if you don't already hold the $ and turn it back into GBP upon the sale.

If the tide turned, and USD tanked vs GBP, it wouldn't impact the hedged etc price as I understand it. Though of course, the gold price in of itself would most likely be influenced by USD tanking.

You need to compare their performance in the same currency, otherwise you are comparing apples and oranges. The GBP hedged fund will deliver a different return than the USD fund in terms of what it is worth when you sell it. What you get from hedging is the same % rise in one currency as a different currency, but this disconnects your return from the return you'd get if you directly held the underlying real asset. Yes, you can buy a derivative that delivers a +10% return if the pound rises 10% against the dollar, or a -10% return if the pound falls 10% against the dollar, but this is currency speculation. If the pound weakens, then its spending power weakens and the gold price in pounds will rise. If that's not the outcome you want, you'd be better off not investing in gold and instead playing the currency markets.

Altior

I suppose it comes down to defining what is the true movement of gold. Yes if it is hedged it will replicate the movement in USD, which I consider to be the base price. As GBP has fallen vs the dollar it means that gold is now more expensive in GBP. As some readers may detect, I own the hedged ETC as I want to reflect what I view as the true movement of underlying gold over the long term. 

masonic

Altior said:

I suppose it comes down to defining what is the true movement of gold. Yes if it is hedged it will replicate the movement in USD, which I consider to be the base price. As GBP has fallen vs the dollar it means that gold is now more expensive in GBP. As some readers may detect, I own the hedged ETC as I want to reflect what I view as the true movement of underlying gold over the long term. 

If I gifted you a gold sovereign, would you feel the need to take out a hedging contract to obtain the true return from your gold over the long term?

Perhaps the most convincing chart I'd share with you if I could, would be one showing those two ETFs rebased to the currency of gold oz. One would be almost flat, just decreasing by the ongoing charges, while the other would bounce around due to the hedging and slope downwards a little more due to the increased cost of hedging.