The value of gold has hit a new record as markets increasingly bet that interest rates will be cut early next year.
Gold rose above $2,111 (£1,666) an ounce for the first time in Asian trading hours, before falling back to $2,086. Some expect the price to top $2,400.
The precious metal’s lowest price in the last 12 months was £1,442.70, Royal Mint figures show.
There was no obvious catalyst for the jump, leaving dealers suspecting that some traders were jumping onto the bandwagon after the price broke $2,107 last week.
At times of economic uncertainty traders rush to buy gold, which offers stability and diversification to portfolios. The metal is considered a safety net against inflation, and its price has risen gradually since the cost of living began to soar.
Global central banks bought a net 800 metric tons of gold in the year to September, as markets price in aggressive interest rate cuts next year.
Traders are betting there is a 59pc chance of a US interest rate cut as early as March, up from 20pc a week ago.
But if you want to stabilise your holdings with gold, what do you need to be aware of? Let’s take a closer look.
Market volatility has prompted a boom in gold
The Royal Mint, based in south Wales, produces the UK’s gold currency, including bullion bars and coins.
In 2022, it saw a 26pc increase in the number of gold investments made. The sale of gold bars, in particular, increased in 2022, with sales rising by 33.5pc.
In January this year, gold surged by 4pc and closed in on its previous sterling high of £1,580 an ounce.
Since then, prices have been pushed up further still, following events such as the collapse of Silicon Valley Bank. Gold is currently worth more than £1,600 an ounce.
Laith Khalaf of wealth manager AJ Bell, said: “A weakening dollar, the re-opening of China, and a slowing global economy have all helped propel the precious metal upwards in recent months.”
In mid-March, the Mint saw a 230pc week-on-week increase in sales of gold investments.
The Pure Gold Company, a bullion specialist, also reported rocketing demand earlier this year. The firm saw a 385pc increase in new enquiries for gold investment, and a 274pc increase in investors purchasing physical gold bars and coins.
Monique Daniels-Daw, of Queensmith, a bespoke jewellers based in London’s Hatton Garden, said: “The price of gold is currently extremely high. In the past few months, it has skyrocketed and now far out-prices platinum. This is unprecedented.”
Gold is viewed as a safe haven
Research from the World Gold Council has found that during recessions, gold prices typically fare well, delivering positive returns in five out of the last seven downturns.
Andrew Dickey, the Mint’s director of precious metals, said: “At a time when financial markets are more unpredictable, investors are taking active steps to protect their portfolios. From our experience, gold and precious metals grow in popularity during challenging times for the global economy as investors look to diversify their portfolios.”
This is a view shared by Walid Koudmani, of financial broker XTB.
He said: “Gold is considered by many to be a way to hedge against inflation. It has also been seen to react positively during times of economic pessimism.”
Josh Saul from The Pure Gold Company, added. “While the price is not guaranteed to rise, the history of gold has proved its worth as a safe-haven asset which tends to go up when other assets are falling.”
Over the past few decades, gold has delivered an increase in value. There has been a general upward trajectory in the price since the early 2000s, albeit with some significant volatility along the way.
Investing in gold is risky
With the price of gold reportedly increasing by an average of 10 per cent per annum over the last 20 years, it can appear a lot more attractive than the returns on global stocks or cash.
But you need to tread very carefully. As with shares, the price of gold is volatile.
Ms Daniels-Daw said: “Just like any investment, putting money into gold is risky. People can be surprised to learn that the price of precious metals fluctuate a lot, and that the price they pay for gold or fine jewellery could be different from year to year – and even month to month.”
While gold may be seen as a safe haven, investors should not equate this with price stability.
Mr Khalaf said: “People tend to flock to the precious metal in times of financial stress, but gold is volatile, and steep losses can be incurred. Between 1980 and 1982, the gold price fell by more than 60 per cent, and between 2011 and 2015, it fell by around 45 per cent.”
Rising rates can be bad news
Investors also need to be aware rising interest rates can be negative for gold.
Mr Khalaf said: “Gold pays no interest, so looks less attractive compared to other safe havens, such as bonds and cash, when yields rise.”
That said, if the global slowdown proves worse than expected this year, and central banks have to slow, or even reverse, interest rate rises, that could be positive for the precious metal.
But now that yields on cash and bonds are that much higher, things may be changing yet again.
Mr Khalaf added: “Conservative investors may be tempted away from gold, back to their natural habitats.”
So should you buy gold?
The best approach is to see the value of gold as offering a bit of diversification in a portfolio. This is because it behaves differently from other assets, especially shares.
Mr Khalaf said: “An investor might hold bonds and gold alongside shares, as they will tend to perform well at different times. But it isn’t the short-cut to riches.
“As the historical returns show, gold does come with significant risks attached.”
How much should you hold?
As with any other investment, the key is to spread your risk.
According to Mr Khalaf, investors should limit their investment in gold to 5 per cent and 10 per cent of their portfolio.
When’s the right time to buy?
If you remain confident about gold, it is worth timing your moment to make the plunge.
Mr Koudmani said: “Gold tends to perform very well when inflation is high, so now could be a good time to start investing, to protect your money.”
How to invest in gold
You can buy physical gold in the form of jewellery, but should always go to a reputable jeweller.
Ms Daniels-Daw said: “Note that there is typically a mark-up to cover the manufacturing or labour costs.”
While it’s also possible to purchase physical coins and bars, you need to think about storage. If you plan on keeping gold at home, it’s advisable to invest in a high-security safe, and ensure you have sufficient insurance cover in place. That said, it’s a lot more secure if held under lock and key in a vault.
Mr Dickey said: “While many people aspire to owning large gold bars, more affordable routes include owning fractional amounts of gold bars via digital gold products, such as DigiGold.”
These are held securely in the Royal Mint’s vault. Expect to pay around 1 per cent of the value of your gold, plus VAT.
Elsewhere, services such as BullionVault enable you to purchase gold online to be held on your behalf in vaults. The Pure Gold Company uses a third party storage company, Loomis.
With any bullion trader, be sure to check costs such as storage and insurance.
Equally, many investors now opt to invest in ETCs (exchange-traded commodities) – stock market funds designed to track the moving price of an asset, such as gold.
Mr Khalaf said: “These funds can be held within Sipps – self-invested personal pensions – and Isas to protect profits from capital gains tax.
“Most investors should stick to physically-backed ETCs, such as iShares Physical Gold ETC. While some funds invest in gold futures, such instruments are complex and risky.
“The vast majority of gold investors are best off sticking with plain vanilla gold ETCs which simply buy and sell the precious metal itself.”
You do not have to pay VAT on investment-grade gold, such as bullion bars and coins. And, if you buy Royal Mint coins that are legal tender, these will also be exempt from capital gains tax.
In it for the long term
Once you’ve invested in gold, you need to take a long-term view, as you may have to wait some years before being able to sell for a profit.
How to invest in gold and pay no capital gains tax