The price of gold has surged to unprecedented heights, hitting a record of $3,600 per troy ounce, reflecting a notable increase of 42% compared to the same time last year. Analysts indicate that this trend might continue, with December futures hinting at a potential rise to $3,700, and some experts even forecasting prices could exceed $4,000 by next year.
Gold is often regarded as an “insurance policy” within investment portfolios, traditionally seen as a stable store of wealth during periods of uncertainty and economic distress. This pattern became evident during the stock market downturn in April, which was linked to concerns over President Trump’s trade tariffs, prompting gold to surpass the $3,000 mark for the first time. Increased buying activity from central banks, particularly in China, has further bolstered gold prices as nations turn to the metal as a secure asset.
Ian Samson, a multi-asset portfolio manager at Fidelity International, emphasized that gold offers diversification and serves as a ‘safe haven’ against inflation and weak economic policies. He noted that the current combination of declining interest rates, persistent inflation, and slow economic growth should enhance the appeal of gold. This movement occurs amidst ongoing uncertainty regarding U.S. tariffs that may affect the value of the U.S. dollar, another traditional refuge for investors.
A recent HSBC survey revealed that 40% of investors intend to purchase gold within the next year, reflecting a noticeable increase in gold’s prominence in investment portfolios—from 4% to 7% over the past twelve months. Xian Chan, head of premier wealth at HSBC UK, highlighted gold’s historical resilience and its effectiveness as a hedge against inflation, contributing to its heightened interest during turbulent periods.
However, potential investors are advised to consider various factors before entering the gold market. Gold prices are largely sentiment-driven, leading to volatility where values can fluctuate based on market demand. Unlike investments in stocks, which can yield dividends, gold does not provide income or guaranteed returns. This lack of return on investment makes gold more attractive in a low-interest-rate environment where investors forfeit less from alternatives like bonds and savings.
Nevertheless, the soaring price of gold may deter some buyers and encourage others to cash in their profits. Claudio Wewell from J. Safra Sarasin Sustainable Asset Management noted that high prices have already suppressed demand for gold jewelry in traditional markets like India and China, where jewelry purchases fell short of long-term averages.
Investing in physical gold, or bullion, remains a common avenue, but storage presents challenges, as keeping valuable assets at home poses risks, while professional storage incurs costs. Trusted vendors like the Royal Mint typically charge around 1% plus VAT for secure storage.
Alternatively, investors can consider low-cost options like exchange-traded commodities (ETCs), which track gold prices. For instance, the iShares Physical Gold ETC has shown significant growth, with a £1,000 investment at the beginning of the year increasing to £1,312, and the same amount invested five years ago valued at £1,741.
Investors may also explore funds focused on gold-related companies, particularly mining and exploration firms, which often thrive when gold demand spikes. Recent statistics revealed that nine of the ten leading funds in August were gold-focused, with Ruffer Gold and Ninety One Global Gold leading the performance charts.
For a balanced approach, experts generally recommend allocating no more than 5-10% of an investment portfolio to gold, a strategy aimed at mitigating risk. As with all investments, individuals should remain mindful that capital is at risk and returns are not guaranteed, with past performance not necessarily indicative of future results.
