The gold price has soared to a new record high amid concerns about the impact of President Trump’s radical trade policies.
This week, the yellow metal’s price reached $3,600 per troy ounce (the unit used to weigh precious metals), up 42 per cent higher from a year ago.
That upward march could continue further, with December futures markets tipping $3,700 already and some experts predicting it could pass $4,000 by next year.
But “buy low, sell high” is the age-old investment advice. So, for those who haven’t yet invested, is it too late?
Traditionally, gold has been used as an “insurance policy” in an investment portfolio. Viewed as a safe store of wealth, its value tends to hold steady or rise at times of uncertainty or economic turmoil.
This was seen in April’s stock market falls, sparked by concerns around Donald Trump’s trade tariffs, when gold passed $3,000 for the first time – and is now playing out again. Central banks, and particularly China, have contributed to the price increases as they are buying more of the metal as a store of value.
Ian Samson, multi-asset portfolio manager at Fidelity International, says: “Gold continues to provide diversification, maintains an ultimate ‘safe haven’ status, offers protection against inflation and loose economic policies, and benefits from structural trends.”
He thinks the toxic cocktail of falling interest rates, sticky inflation and lacklustre economic growth should bolster gold. The metal could become more attractive if the US dollar, another popular safe haven, is impacted by ongoing uncertainty around tariffs.
Against such a backdrop, the metal is catching investors’ attention.
(Getty Images)
A survey by HSBC found that four out of 10 investors plan to own gold within the next 12 months, with many seeing it as a way to diversify. Investors have almost doubled their exposure to the metal with it now accounting for 7 per cent of a typical portfolio, up from 4 per cent last year, it found.
Xian Chan, head of premier wealth at HSBC UK, said: “Throughout history, gold has been used as a store of value and financial security, with governments often tying their currencies to it. It has a track record of being resilient and a good hedge against inflation, which is why it often sees a surge in popularity during uncertain times.”
Before rushing out to add it to your investments, there are other factors to consider.
The gold price is largely driven by sentiment, meaning it falls when the asset is out of favour and rises when it is in demand. That can make it a volatile asset to own.
Investing in company shares also comes with ups and downs, but these often pay dividends, so investors are compensated even when the price is not rising. That is not true of gold, which offers no form of income or guaranteed return.
This is one reason the metal becomes more attractive when interest rates are falling, because investors are giving up less potential return from alternatives such as bonds and savings. More rate cuts expected both in the UK and US could further stoke demand.
But soaring prices could lead some investors to sell up and bank their profits or put off potential buyers. Claudio Wewell, from J. Safra Sarasin Sustainable Asset Management, says higher prices are already dampening demand for gold jewellery purchases.
“In the second quarter of this year, Indian and Chinese jewellery demand amounted to only around 60 per cent and 45 per cent of their long-term averages, respectively,” he said.
The most obvious way to invest is to buy physical bars, known as bullion. The main problem with this is storing them safely; keeping such a valuable asset around the home is clearly a risk, but paying for it to be stored professionally can be expensive.
Make sure you buy through a reputable company. The Royal Mint typically charges 1 per cent plus VAT for storage in its own vault. Bear in mind that selling a physical asset can take longer than selling other assets, such as shares.
(Getty Images/iStockphoto)
Perhaps the more convenient way to invest is through a low-cost tracker fund, known as an exchange-traded commodity (ETC), which simply tracks the gold price. The iShares Physical Gold ETC charges just 0.12 per cent. If you had invested £1,000 at the start of the year, it would have grown to £1,312. The same amount invested five years ago would now be worth £1,741.
You can hold it in your investing ISA, meaning any gains would be tax free.
Additionally, a range of funds invest in gold-related companies, such as mining and exploration firms, which tend to thrive when interest in the metal peaks. Nine of the ten top funds in August were gold focused. Ruffer Gold topped the tables, up 20.3 per cent in the month, followed by Ninety One Global Gold, which returned 17.6 per cent.
Alternatively, choose a broader fund with exposure to the metal. The Troy Trojan fund focuses on capital preservation, investing in a range of assets including the shares of large companies such as Unilever and Visa. It has 11 per cent of its portfolio in gold and gold-related investments. A £1,000 investment in the fund would have grown to £1,258 over five years.
Regardless of which route you choose, experts typically suggest having no more than 5-10 per cent of your overall portfolio allocated toward gold.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
