Amid stock market turmoil, falling bonds and oil prices collapsing across April as the world reacted to the trade war developing through Donald Trump’s tariffs, one investment took centre stage: gold.
Long seen as a safe haven for cash, many investors took to buying physical gold – or its equivalent in funds – when other markets were suffering earlier this year.
A prolonged spell of buying has seen the price soar to new all time highs, now around $3250 (£2460) per troy ounce (a standard measurement of precious metals).
In April it peaked over $3500 for the first time, but the climb has been going on for two years now – having been below $1900 at the start of September 2023.
So what’s behind the rise and what does the future hold for investing in gold?
What affects the price of gold?
Not an easy question to answer as it’s so wide-ranging, but gold is all at once a commodity, a store of value, a precious metal and a raw material – so each of those areas have conflicting forces which can impact, as well as supply and demand.
Gold of course needs to be mined and the production of it is effectively limited. Additionally, the cost of mining is a factor even before the demand for goods made of it.
More difficult to judge and factor in are macroeconomic events, of which the last few years has provided plenty around the globe.
“As with any commodity investment, gold can be volatile, as evidenced by prices falling 1.4 per cent on the back of the US-China agreement on tariffs,” said Lindsay James, investment strategist at Quilter. “That said, with US inflation still expected to move higher and other safe haven assets suffering as a result of increased inflation expectations and the level of US debt rising ‘on an unsustainable path, gold is likely to remain popular with investors.”
Another impact in recent times on gold has been the stockpiling of it as a hedge against possible currency fluctuations, Ms James explained.
“The strong rally in the price we have seen in recent months has been supported by central banks looking to diversify their dollar exposure, in light of Trump’s tariff announcement and this demand, whilst potentially moderating, is unlikely to reverse in the near term.”
Pros and cons of investing in gold
Compared to actual cash, gold does not lose value due to inflation, nor is it subject to the changeable nature of interest rates. That’s part of why people view it as a safe haven, and see those standalone properties as positives.
However, there’s no guarantee that the price of gold itself will rise. If you bought at the start of 1990, for example, it was about 14 years before the price showed any meaningful increase.
During such times, gold pays no interest like cash and pays no dividends like shares.
While you can buy physical gold, storage, insurance and transport costs mean many turn to exchange traded funds (ETFs) instead, which act as a proxy for the value of gold, allowing individual investors to buy shares in the ETFs which are listed on stock exchanges. For those in the UK, therefore, that also means any gains from them are tax-free if held in an ISA.
They are potential drawbacks, along with the missed opportunities of investing elsewhere in the meantime.
In commodities terms, oil can be more volatile, rare earth metals are becoming ever-more sought after and there are markets for everything from silver to soybeans, meaning it can be tough to be well-informed across the board.
What’s next – and is it a good investment now?
The old saying of “time in the markets, not timing the markets” is often used for stock markets and equities investments, but what about for commodities – especially those at all time highs?
Clearly some context is important, but as with all investments, your time horizon should be a long term one if considering allocating a portion of your portfolio to commodities.
That’s because there are never any guarantees of what lies ahead in investing – but for gold, even if a sell-off takes place following such large rises recently, experts feel the longer-term future could still follow an upward trajectory.
“The performance of gold will be closely linked to the outlook for growth, inflation and the level of geopolitical risk,” Ms James said.
“Currently we are seeing US tariffs unwound somewhat, on a temporary basis at least, which is reducing inflationary pressure and limiting the negative impact on growth. However, growth and inflation outlook for the US at least remains more challenged than it was at the start of the year. Uncertainty is likely to remain high, which is generally a positive environment for gold.”
