The rise in gold prices has reached unprecedented levels, reaching $3,600 per troy ounce this week, a staggering increase of 42 percent compared to a year ago. Concerns surrounding President Trump’s aggressive trade policies are fueling this surge, with futures markets hinting that prices could climb to $3,700 in December and potentially exceed $4,000 by next year.
The traditional wisdom of “buy low, sell high” prompts many new investors to consider whether it’s still a wise time to enter the market. Gold is renowned for its role as an “insurance policy” within investment portfolios. It is often perceived as a stable store of wealth, particularly during economic uncertainty or turmoil. The recent escalation in gold prices coincided with significant stock market drops in April, attributed to apprehensions over Trump’s trade tariffs.
Central banks, notably China, are also playing a pivotal role in driving gold prices upward by increasing their reserves of the metal as a hedge against economic instability. Ian Samson, multi-asset portfolio manager at Fidelity International, supports this perspective, noting that gold offers diversification and protection against inflation and lax economic policies. He foresees that the confluence of diminishing interest rates, persistent inflation, and sluggish economic growth will further enhance gold’s attractiveness, especially if the US dollar—a conventional safe haven—dips due to ongoing tariff uncertainties.
A survey conducted by HSBC indicates a growing interest in gold, with four out of ten investors intending to hold it within the next year. The report reveals that average exposure to gold in investment portfolios has nearly doubled, increasing from 4 percent to 7 percent over the past year. Xian Chan, head of premier wealth at HSBC UK, emphasizes gold’s historical role as a reliable store of value and a safeguard against inflation, particularly during unpredictable economic climates.
However, potential investors are urged to exercise caution. The gold market is heavily influenced by market sentiment, resulting in volatility; prices can plummet if the asset is out of favor. Unlike equities, which can provide dividends even during downturns, gold does not offer any income or guaranteed returns. Therefore, the allure of gold tends to rise when interest rates fall, as the opportunity costs of holding gold become lower.
Yet, soaring gold prices might discourage some from buying, as higher costs could lead to profit-taking. Claudio Wewell, from J. Safra Sarasin Sustainable Asset Management, points out that high prices are already impacting gold jewelry demand; recent figures show that consumption in India and China is significantly below long-term averages.
Interested investors have various avenues to consider. Purchasing physical gold—bullion—remains a classic option, although it poses storage challenges. Alternatively, investors can turn to low-cost exchange-traded commodities (ETCs), which track gold prices with minimal fees. For example, the iShares Physical Gold ETC charges only 0.12 percent, and past performance shows impressive gains for early investors.
Moreover, funds focused on gold-related companies, such as mining firms, are also appealing during times of heightened interest in gold. For instance, Ruffer Gold and Ninety One Global Gold were among the top-performing funds recently, reflecting strong returns amid rising gold prices.
Experts typically recommend limiting gold investments to 5-10 percent of an overall portfolio. It is essential for investors to remain aware that market conditions carry risks, and potential returns are not guaranteed. All investment decisions should be made with due diligence and an understanding of the inherent risks.
