It’s been a momentous week in the history of gold – some 2,500 years since it first became a store of value, in ancient Egypt.
The price reached a record $4,040 an ounce, soaring 52 per cent since the start of the year and by 250 per cent over the past decade.
Forecasts predict it could go further, too – its performance has been outpacing bonds, shares and cash.
Geopolitical tensions are mounting, inflation is proving sticky and uncertainty surrounds the Trump administration’s next policy shift. The US government shutdown has exacerbated the angst.
By the end of 2026, gold could climb to $4,900. Or so forecasts US investment bank Goldman Sachs. Veteran New York hedge fund manager Ray Dalio also argues that gold has become the ‘most fundamental’ hard currency, a comforting prospect in an edgy era.
The belief that the metal has further to travel is reflected in 270 per cent jump since January in the shares of FTSE 100 company Fresnillo, which mines gold in Mexico.
Gold rush: The price reached a record $4,040 an ounce, soaring 52 per cent since the start of the year and by 250 per cent over the past decade
Against this background, investors worldwide have poured $64billion into exchange traded funds (ETFS) that back either bullion or gold mining shares.
These funds hold $472billion worth of savings. Some private investors have never been that keen on gold because it does not offer an income. Maybe they should now see the estimates of further increases for gold as a wake-up call.
Trevor Greetham, head of multi asset at Royal London Asset Management, said: ‘I’m constantly being asked whether gold can go higher.
My answer is: ‘Only if common sense breaks out in the US.’
‘Seriously, however, we are ‘long’ gold, keeping a slice of the pension cash that’s been entrusted to Royal London in this commodity. Currently, gold is a hedge that is a protection against the weak dollar.
It’s also a hedge against ‘fiscal overload’. Those are the consequences of America’s level of national debt.’
The future direction of the gold price may depend on Trump’s next pronouncement. But its trajectory this year is a reminder of a policy failure of a past Labour government.
Between 1999 and 2002, the then-chancellor Gordon Brown sold 395 tonnes of our nation’s gold for £2.6billion. This would today be worth £38billion. Channel your irritation over this unfortunate episode into exploring ways in which you can join the gold party.
It could be hit by ‘up-trend exhaustion’, as Paul Ciana of Bank of America points out. But its ascent is a signal to reassess your strategy.
Why it is glittering
The current passion for gold is reminiscent of the 1970s, when soaring inflation sent investors scurrying for this safe haven.
The metal seems to have regained this status, edging aside the dollar which became the most popular home for ‘funk money’ in the global financial crisis of 2008.
Gold is at the epicentre of what traders are calling a ‘debasement trade’, with investors shunning not only the dollar but the yen, too.
Luca Paolini, of Pictet Asset Management, says that buyers of bullion are being driven by Fomo – or ‘fear of missing out’ – which is spreading fast. He says gold has become so big ‘that it is impossible to ignore it’.
Much of the demand is coming from central banks of major and emerging nations, including Kazakhstan, Poland and Turkey. The People’s Bank of China has been adding to its reserves every month for the past 11 months.
Some have been ‘de-dollarising’ since February 2022 when America and its allies froze £225billion of Russian assets held in their banking systems at the outbreak of war in Ukraine. This sparked concerns that the dollar would be deployed again as a weapon of US government policy.
Diversity: Gold’s best-known competitors are Alphabet, owner of Google; Amazon; Apple; Meta; Microsoft; Nvidia (led by boss Jensen Huang, pictured); and Tesla
A golden opportunity?
One reason to hold a chunk of gold in your portfolio is the need to diversify, as artificial intelligence (AI) stock bubble apprehension grows.
The Bank of England this week warned of the risks of placing too much confidence in the soar-away shares of the US tech titans who are spending many billions to win the AI arms race.
The best-known competitors are the Magnificent Seven: Alphabet, owner of Google; Amazon; Apple; Meta (the Whatsapp and Instagram group); Microsoft; Nvidia; and Tesla.
Chip-maker Nvidia’s shares have leapt 28,700 per cent since 2015, a feat so extraordinary that even the most cautious-minded investor is tempted to hang around in the hope of further agreeable surprises, however great the hazards.
So great have the rewards from Nvidia and other Magnificent Seven stocks been that many among the hundreds of thousands of UK private investors, who have money in their shares, will be reluctant to take profits or trim their holdings.
If you are one of them and are willing to contemplate the bursting of what it could be the AI bubble, a chunk of gold could provide a shelter against the possibility of a sharp reverse in share prices.
This is a strategy already followed by professionals, with a few even recommending that gold should make up as much as 15 per cent of a portfolio, although 5 to 10 per cent is viewed as a more realistic proportion.
Thierry Wizman, of Australian bank Macquarie, commented: ‘Gold’s rally is the collective ‘hedge’ against the prospective failure of the AI-driven tech boom to deliver on its high-productivity, high-growth promises, or to justify the vast investment needed to support those promises.’
Your own precious pot
Madhushree Agarwal, of Nedgroup Investments, argues that gold deserves a place in your portfolio because it can shield you against ‘high-impact shocks’.
‘Gold sits at the intersection of protection and opportunity, giving reassurance when markets get stormy,’ she said.
This column first suggested that readers get some exposure to gold in April 2024 – when the price was $2,280.
In February this year, by which time the price had risen to $2,886, we highlighted the wisdom of such a move – advice we reiterated in June when the price was at $3,389. I followed my own advice, committing some cash to the iShares Physical Gold ETF.
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