We mention gold often and with good reason. For many investors it is still, as Superman would say, “the safest way to travel” in uncertain markets.
Its diverse range of applications, from electronics and space technology to jewellery and bullion, means it’s always in demand – and this combines with its scarcity of supply to ensure value remains high.
Unlike many investments, that value is intrinsic. An ounce of gold will always be an ounce of gold, whereas currencies may be affected by exchange rate fluctuations, inflation and quantitative easing, and stock prices are linked with the performance of a company.
So it makes sense that 5,000 years since it was first used in Ancient Egypt, gold is still the first choice store of value and no other commodity has ever really come close to taking its place.
On an all-time high
Gold’s all-time high US dollar price per ounce occurred in autumn 2011 when it topped $1,850. At that time the global recession was starting to bite and its true depth was emerging, leading investors to rush to their traditional safe haven of gold.
There followed a peak lasting around 18 months before prices fell again, bottoming out in late 2015 at a still respectable nadir of more than $1,050 per ounce.
Gold has been tracking upwards ever since, hitting nearly $1,550 in September 2019, and subject to short-term volatility the big question is whether it will settle around $1,450 or $1,500, or continue its upward trajectory into 2020.
In terms of its price in sterling, the gold chart for 2019 is almost a perfect replica of the dollar-pound exchange rate, with a strong pound corresponding to lower gold prices and vice versa.
This is especially pronounced in the figures for late summer, when in August-September factors including Brexit uncertainty led to a slump in the value of the pound and a peak in GBP gold prices of nearly £1,300 per ounce – smashing the previous all-time high.
Why are gold prices so high right now?
Gold has a clear place in a recession, but more recently the factors driving its price higher have been geopolitical.
In the UK, Brexit looms large on the horizon, and consecutive delays to the planned withdrawal date have extended that uncertainty since 2016 – throughout the period in which gold has been tracking upwards.
At the same time, in the US, the presidency of Donald Trump has led to much more volatile economic activity, as he is much more willing to impose trade sanctions on imports from any country he has a dispute with.
This has included some of the fastest growing economies such as China and Russia, two of the four BRIC nations previously touted as future dominant forces.
While the BRIC bloc is no longer the headline grabber it once was, these countries are still a key component in the global economic engine and anything that reduces their ability to trade with an economy the size of the USA increases investor uncertainty.
Finally, traditional investments like bonds have been hit by historically low interest rates ever since the recession, and monetary policymakers are finding it hard to make the case for higher base rates even now.
This means bond yields are low, and has many investors looking to their shiny old friend as an alternative way to increase the value in their portfolio.
Should I buy gold now?
Prices are high, there’s no doubt about that. They’re close to an all-time high in the UK and perhaps would be even higher if not for the recent strengthening of the pound. Likewise in the US, it seems likely that gold will either stabilise or break its ceiling price further in 2020.
With several significant uncertainties in global economies, especially relating to cross-border politics, investors should be prepared for fairly high volatility in gold prices. To put it simply, if you buy now, you should not plan to sell soon.
But time continues to show that gold is a worthy long-term investment, and only those who bought in during that 18-month peak in 2011-13 will currently be sitting on a loss.
Remember that for many investors, gold is a hedging strategy, a commodity that holds intrinsic value at a time when fiat currencies are falling and stock markets in crisis.
Because of this, you might want to make it a small but significant percentage of your total portfolio – perhaps 5-10% – as part of a broader diversification strategy.
Also remember that if you do decide to invest in gold, you should look to forms where you don’t have to pay a premium for workmanship, so invest in bullion rather than in commemorative coins or jewellery.
Finally if you want to invest in gold without taking delivery of the physical commodity itself, look for precious metals exchange traded funds (ETFs) with exposure to gold, as this is one way to speculate on increasing value of the yellow metal without buying it directly.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.