Gold - A Solution for Persistent Inflation and Volatile Markets

As interest rates began to climb in 2022, and markets became increasingly volatile, more and more investors started looking for alternative investments to help insulate their portfolios. Many of them found what they were looking for in what is generally known as a “safe haven” investment - gold.  

Physical gold bullion has earned its reputation by virtue of its strong historical performance. Despite some short-term fluctuations, gold has delivered an annualized average rate of return that has surpassed major indices since 2006.¹ Just as importantly, gold has a tendency to behave differently from traditional assets like stocks and bonds, especially during times of market turbulence, making it a good portfolio diversifier that can help mitigate risks like inflation, as well as macroeconomic and geopolitical upheavals. “Generally, gold is an uncorrelated asset class to both stocks and bonds,” said Matt Montemurro, Head of Fixed Income & Equity Index ETFs at BMO Asset Management. “During periods of volatility when the market sells off, gold can provide an alternative return stream. It’s an asset class that can both improve returns and reduce downside risk. I think that’s a winning formula.”

The move to gold is a growing trend that is playing out all over the world. Many central banks are ramping up their gold reserves to diversify as the real value of fiat currencies are being eroded by inflation. In another move that signals a significant shift in the global financial landscape, BRICS nations (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, and United Arab Emirates ) have announced their plans to introduce a new unified trading currency backed by gold, underscoring their confidence in it as a stable asset.

While gold is increasingly becoming a valuable hedge for governments around the world, it is also considered by many to be an important core investment, suitable for any type of investor. In fact, based on the Sharpe ratio, a widely used method for measuring the efficiency of risk-adjusted returns, even a 5% allocation to gold provides better risk adjusted returns than a traditional 60/40 portfolio. A 55% Equity, 40% Fixed Income 5% Gold portfolio has produced greater returns, lower levels of volatility and higher Sharpe ratios over 3, 5 and 10-year periods.²

Recognizing the importance of this asset, BMO Asset Management recently launched three new gold bullion ETFs. ZGLD is designed to mirror the London benchmark price for gold (LBMA) in Canadian dollars, and ZGLD.U does the same in US dollars. Investors who want to mitigate the currency risk between US and Canadian dollars can purchase ZGLH.  

All three of these BMO gold bullion ETFs are created with convenience and security in mind. While there are still some investors who prefer to buy physical gold bars and store them on their own, gold bullion purchased through a BMO ETF is professionally housed in a Toronto based vault owned and managed by BMO Capital Markets. Once housed, the gold is audited regularly to provide investors peace-of-mind. All this, for a very competitive management fee of 20 basis points.

The ZGLD, ZGLD.U, and ZGLH gold bullion ETFs are exciting new additions to BMO’s ETF lineup that features a wide array of ETFs in both the equity and fixed income spaces. According to Montemurro “it’s a very robust product suite that touches on almost every aspect of the equity and bond markets. Our new gold bullion products are going to add a very exciting alternative sleeve to our suite of solutions, by providing exposure to actual gold bullion, but in the form of an ETF.”

You can buy and sell any one of these BMO gold bullion ETFs with just a click of a mouse through a direct trading account, or through your advisor.

For more information, visit bmoetfs.ca  

_{Footnotes/Sources:}

_{1Source: BMO Global Asset Management, Bloomberg As of February 6, 2024. Average annual percentages are calculated in local currencies. Past performance is no guaranteed of future results}  

_{2BMO Global Asset Management , Bloomberg,(60/40 portfolio – is composed of 60% S&P/TSX Composite Index and 40% FTSE/TMX Canada Bond Universe Index , 55/40/35 portfolio is composed of 55% S&P/TSX Composite Index, 40% FTSE/TMX Canada Bond Universe index and 5% Spot Gold Index), All components are in Canadian dollar terms. Time period used for calculations are Monthly from January 2, 2006- January 31,2024}

_{FULL DISCLOSURE: BMO is a client of BTV-Business Television. This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. Any action taken as a result of reading information here is the reader’s sole responsibility.}

_{This content is sponsored by BMO Exchange Traded Funds.}  

_{Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.}

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