It’s $ 2,000 an ounce … but if you want to join the gold rush, TOBY WALNE asks
A wave of investors looking for a safe haven because of the stock market turmoil is pushing the gold price close to a mythical $ 2,000 (£ 1,538) an ounce.
Fears of a second wave of coronavirus that has once again led to a lockdown have increased demand for gold bars and coins among the first gold buyers in the past two weeks by more than 1,100 percent compared to the same time last year, said gold trader Pure Gold Company.
Still, many investors are understandably wary that the rising price of this precious metal could eventually fall.
So is it too late to join the gold rush? Most experts think it has become risky to buy at the current price, even if it could be even higher.
Risk: Gold is seen as insurance amid the stock market turmoil
Crucially, the thriving market is driven by people who hedge against a future economic crisis – and don’t try to get rich quick.
Josh Saul, director of Pure Gold Company, says, “Customers fear they have missed gold price hikes from December last year to now, when gold has risen in value by more than 30 percent.
“But they don’t buy purely for growth, but as insurance. The higher the risk, the more expensive the insurance – and with the rising gold price, this gives an indication of how the market perceives the world in these times of great economic uncertainty. ‘
Earlier this week, gold reached $ 1,981 (£ 1,523) an ounce before dropping to about $ 1,975.
This record price is above the previous high of $ 1,921 an ounce reached in September 2011 during the European debt crisis – before dropping.
With economic uncertainty on the horizon, the possibility of breaking this $ 2,000 barrier is real – but not necessarily a reason to invest.
Confidence in the economy was further affected by a revival of Covid-19 cases in Europe, bolstered by last week’s decision to reintroduce quarantine regulations for those traveling to Spain.
In addition, there are concerns that printing more money by the US Federal Reserve, the Bank of England and the European Central Bank may not be enough to ward off growing concerns about a recession.
This so-called quantitative easing tactic to stimulate economies also risks devaluing currencies, making base metals such as gold appear relatively more attractive.
Adrian Lowcock, head of personal investing with broker Willis Owen, says, “We think gold could easily break the $ 2,000 mark this year. But it is fair to ask after a rally of this magnitude whether gold still has value for investors. ‘
If you think the gold price is going to rise – or stay high while other assets are falling – a fund that tracks the price is one of the easiest ways to invest.
Jason Hollands, general manager of advisor Tilney Bestinvest, said: “Fortunately, investment in gold today no longer requires physical possession of the metal or even indirect investment through volatile gold mines.
“A much easier way to get involved is through an exchange traded fund – an exchange-traded investment vehicle that tracks the price of a physical asset. These can also be included in your Isa or pension. ‘
Gold tracker funds include Invesco Physical Gold ETC, listed on the London Stock Exchange. It reflects the performance of the London Bullion Market Association Gold Price which charges only 0.19 percent per year. Another is ETFS Physical Gold.
Last week, gold reached $ 1,981 (£ 1,523) an ounce before dropping back to about $ 1,975
A number of actively managed investment funds also deposited money into companies involved in gold – mostly through mining stocks. Gold funds include BlackRock Gold & General and JPM Natural Resources.
Hollands says: ‘Funds that invest in the shares of mining companies instead of precious metal are not for the faint hearted. The extraction costs are high, so the profit is sensitive to changes in the underlying price of base metal. You can have periods of great returns followed by steep losses. ‘
Hollands points out that global gold mining stocks have soared by more than 48 percent compared to the 30 percent gold price increase.
Investors who want the real thing can also buy stocks in a 400-ounce, 24-karat gold bar for just a few pounds directly from a gold dealer, such as BullionVault or the Pure Gold Company.
You can also invest in gold coins. Sovereign and Britannia coins are considered legal tender, so escape capital gains tax if they increase in value. A sovereign is currently worth around £ 380.