ETFS Physical Gold: a fund for our times?

The ETFS Physical Gold, a pick of Citywire Selection, offers you a hassle-free way to track the price of the yellow metal.

January rally

Gold rallied almost 14% in January in dollar terms, recouping most of the losses incurred in last November and December's sell-off.

Its current rally, during a good period for equities, is relatively uncommon as gold's perception as a ‘safe haven’ normally means it is less correlated with stock markets.

So why is it rallying?

It may reflect the high level of uncertainty still present in markets as the European debt debate rumbles on despite more positive numbers coming from the US. Or it may simply be a reaction to the sell-off at the end of last year.

Emerging market demand

Randgold Resources (RRS.L), a dominant player in South African gold, has ventured that demand from emerging consumers and governments might be what is supporting the high gold price, which is now in the $1,700-1,800 bracket.

So who is consuming the gold? A recent article on American investment website The Big Picture is essential reading for understanding the basics of gold consumption and refining.

India is far and away that largest consumer of gold. On the subcontinent it is heavily used as a status symbol, with the country having nearly double the consumption of China and five times the consumption of the United States.

On a domestic level, meanwhile, even companies such as Tesco are looking to buy the precious metal.

Globally more than half of the gold mined each year is used for jewellery (52%), a third for holdings and investments (34%), including exchange-traded funds (ETFs) such as this one, with the remaining 12% used in industry.

How well does the ETF track gold?

The 20-year bull run on gold appears to be in rude health, and the ETFS Physical Gold has proved extremely adept at delivering the highs and lows of gold at a small cost.

If you're new to the world of ETFs, watch our video ETFs explained: how safe are they?