The price of gold bullion has fallen by 35pc in three years but every gold fund has more than halved, with some losing even more.
By Kyle Caldwell
11:07AM GMT 05 Nov 2014
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Over three years the average gold fund has lost 67pc Photo: EPA
While gold bullion has lost 35pc of its value over the past three years, one gold fund, MFM Junior Gold, has fallen by 83pc over the same period.
Others have performed almost as poorly, with the popular BlackRock Gold & General fund down by 61pc over the same period and Ruffer Baker Steel Gold 73pc lower.
In fact all seven gold funds available to British investors have more than halved in three years, hugely magnifying the fall in the gold price.
What has happened to the gold price?
What has happened to the gold price?
Since July 11 this year the gold price has fallen by 15pc, from $1,338 to $1,168, to hit a four-year low. Over the past year the falls are similar, while over three years the price has fallen by 35pc.
Analysts have blamed the strong US dollar for the latest slump.
When the dollar rises, gold becomes more expensive for investors to buy because gold is a dollar-denominated commodity.
This trend is not expected to reverse any time soon. Chris Beauchamp, a market analyst at IG, said he expected the dollar to strengthen further against other several other currencies and push the gold price below $1,000.
Gold fund losses - in charts
In the chart we have highlighted the three most popular gold funds - BlackRock Gold & General (yellow line), Investec Global Gold (green line) and Smith & Williamson Global Gold & Resources (red line).
As the chart shows, each fund has lost 20pc since the start of July, when gold took its latest tumble.
Gold fund managers tend to buy both bullion and shares in gold mining firms, whose fortunes are linked to the ups and downs of the gold price. So when gold falls, these funds will inevitably suffer heavy losses.
There are seven gold funds available to British investors and on average they have lost 32pc over the past year, turning a £10,000 investment a year ago into just £6,800.
Over three years, as the table below shows, gold funds have performed even worse, with the average fund losing 67pc or turning a £10,000 investment into £3,300.
Source: FE Trustnet
What about other funds that hold gold?
Specialist gold funds are not the only ones to have suffered from the metal's poor run. Some well regarded professional investors, such as Sebastian Lyon of Troy Asset Management, who manages the Personal Assets investment trust, and Alastair Mundy, who runs the Investec UK Special Situations fund, have around 10pc of their portolios in the precious metal. These gold positions have detracted from performance, with both funds underperforming peers in recent years.
But both fund managers have said they will not be selling their gold holdings any time soon. Mr Lyon said he would continue to hold gold as a hedge against inflation, calling gold a "timeless currency" that will protect wealth over the long term.
Mr Mundy said he was sticking with gold for the same reason. "I worry that shares and bonds could both fall from here, so I think it is important to hold other assets such as gold and cash to protect investors," he said. "Another concern that is keeping me awake at night is inflation, as I believe from these low levels it is going to go higher and become more of a problem. This will serve gold investments well as the precious metal is the ultimate inflation hedge."
What are the other routes for investors who want exposure to gold?
For investors who do not want to buy a specialist gold fund another route is to use an exchange-traded fund, such as ETF Securities’ Gold Bullion Securities, which tracks the movements of the gold price.
Shares in ETFs can be bought and sold via stockbrokers, just like any other share.
You can own physical gold bullion through trading platforms such as The Real Asset Company (therealasset.co.uk) or BullionVault (bulllionvault.com), where bullion can be bought or sold in small units and stored in secure vaults on owners’ behalf.
Analysts have blamed the strong US dollar for the latest slump.
When the dollar rises, gold becomes more expensive for investors to buy because gold is a dollar-denominated commodity.
This trend is not expected to reverse any time soon. Chris Beauchamp, a market analyst at IG, said he expected the dollar to strengthen further against other several other currencies and push the gold price below $1,000.
Gold fund losses - in charts
In the chart we have highlighted the three most popular gold funds - BlackRock Gold & General (yellow line), Investec Global Gold (green line) and Smith & Williamson Global Gold & Resources (red line).
As the chart shows, each fund has lost 20pc since the start of July, when gold took its latest tumble.
Gold fund managers tend to buy both bullion and shares in gold mining firms, whose fortunes are linked to the ups and downs of the gold price. So when gold falls, these funds will inevitably suffer heavy losses.
There are seven gold funds available to British investors and on average they have lost 32pc over the past year, turning a £10,000 investment a year ago into just £6,800.
Over three years, as the table below shows, gold funds have performed even worse, with the average fund losing 67pc or turning a £10,000 investment into £3,300.
| Fund | Three year performance - November 2011 to November 2014 | One year performance - November 2013 to November 2014 |
|---|---|---|
| BlackRock Gold & General | -61pc | - 21pc |
| CF Ruffer Baker Steel Gold | -73pc | -29pc |
| Investec Global Gold | -61pc | -65pc |
| MFM Junior Gold | - 83pc | -29pc |
| SF Webb Capital Smaller Companies Gold | - 79pc | -35pc |
| Smith & Williamson Global Gold & Resources | - 61pc | -20pc |
| Way Charteris Gold & Precious Metals | - 54pc | -28pc |
Source: FE Trustnet
What about other funds that hold gold?
Specialist gold funds are not the only ones to have suffered from the metal's poor run. Some well regarded professional investors, such as Sebastian Lyon of Troy Asset Management, who manages the Personal Assets investment trust, and Alastair Mundy, who runs the Investec UK Special Situations fund, have around 10pc of their portolios in the precious metal. These gold positions have detracted from performance, with both funds underperforming peers in recent years.
But both fund managers have said they will not be selling their gold holdings any time soon. Mr Lyon said he would continue to hold gold as a hedge against inflation, calling gold a "timeless currency" that will protect wealth over the long term.
Mr Mundy said he was sticking with gold for the same reason. "I worry that shares and bonds could both fall from here, so I think it is important to hold other assets such as gold and cash to protect investors," he said. "Another concern that is keeping me awake at night is inflation, as I believe from these low levels it is going to go higher and become more of a problem. This will serve gold investments well as the precious metal is the ultimate inflation hedge."
What are the other routes for investors who want exposure to gold?
For investors who do not want to buy a specialist gold fund another route is to use an exchange-traded fund, such as ETF Securities’ Gold Bullion Securities, which tracks the movements of the gold price.
Shares in ETFs can be bought and sold via stockbrokers, just like any other share.
You can own physical gold bullion through trading platforms such as The Real Asset Company (therealasset.co.uk) or BullionVault (bulllionvault.com), where bullion can be bought or sold in small units and stored in secure vaults on owners’ behalf.
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