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Gold Investors Are Piling Into This 1 Investment

By Reuben Gregg Brewer – Jul 2, 2017 at 11:22AM

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Investors are increasingly worried about the market, and they've been stampeding into this gold investment.

Some billionaire investors are concerned about the markets, so they've been investing in gold and gold stocks to help protect themselves from increasing market volatility. If you want to protect your portfolio, too, you should check out this one investment that gold investors have been piling into...iShares Gold Trust (IAU -0.51%).

Never fear?

So who's concerned about the market, which is trading at a Shiller P/E (a cyclically adjusted price-to-earnings ratio) that is 80% higher than its historical average? Try billionaire investors like Lord Jacob Rothschild (a member of the famously wealthy Rothschild family, at RIT Capital Partners), David Einhorn (Greenlight Capital), and Ray Dalio (Bridgewater Associates). It's not so much the valuation of the market for this trio, however, but the increasing uncertainty surrounding world events. Essentially, they are worried the market is poised to tumble if there's a shock to the economic and political systems we have in place today.

A man holding a gold ingot

Image source: Getty Images.

For example, Rothschild has been placing "an emphasis on capital preservation," because he's worried that -- using very diplomatic words -- the "patiently crafted international cooperation" of the last 70 years is under threat. David Einhorn is a bit more direct, saying that "The new administration comes with a high degree of uncertainty," and specifically highlighting the Donald Trump presidency as a worry. This concern is echoed by Ray Dalio, who recently noted: "When faced with the choices between what's good for the whole and what's good for the part, and between harmony and conflict, he has a strong tendency to choose the part and conflict."

All three have money in gold and gold stocks. And they aren't alone if the numbers from iShares Gold Trust are any indication.

What to watch

The iShares Gold Trust is an exchange-traded fund that owns physical gold. Owning shares of the trust is basically equivalent to owning gold but without the need to take possession of it and store it yourself. The expense ratio of the trust is 0.25%, not a bad trade-off when you consider the hassle of buying gold on your own. The trust owns around 6.744 million ounces of the yellow metal.

The interesting thing about exchange-traded funds, however, is that their share counts go up and down with demand. Essentially, when investors want more iShares Gold Trust shares, more are made, increasing the share count. And when investors are moving out of the ETF, shares are redeemed, reducing the share count. It's a complicated process, but an increasing share count shows increasing demand for the trust. And in this case, for gold:

IAU Chart

IAU data by YCharts.

The share count trend has been nothing but up at iShares Gold Trust lately. At the start of 2016 iShares Gold Trust had roughly 508 million shares. By the end of that year, the share count had increased to 655 million shares, a nearly 30% jump. The share count has continued to head higher this year, with the number up to 701 million as of June 28. That's another 7% increase through roughly the first half of 2017, bringing the increase over the last year and half to nearly 40%.

Maybe it's time to be worried

Investors are clearly piling into iShares Gold Trust. And with investors like Rothschild, Einhorn, and Dalio including gold in their portfolios, it might be a good idea for you to take a second look at the yellow metal, too. If you don't want to buy gold directly, which can be a real hassle, iShares Gold Trust is a good option for easily adding gold to your portfolio.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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