Today, the price of gold sits at £1,907, down on Friday’s peak but still higher than at any other time before.
Here, Which? find out what’s behind the spiking price of gold and whether you should invest.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.Why is the price of gold so high?
Gold prices often reflect investors’ perception of the global economy, spiking at times of high inflation and recession fears.
Significant increases in the price of gold took place in the 70s and from late 2007 to early 2012 - both periods marked by ‘stagflation’, where inflation is high and economic growth is stagnant.
The price of gold also tends to increase in other times of panic. For example, there was a jump in its value as the Covid-19 pandemic hit.
Victoria Hasler, head of fund research, Hargreaves Lansdown says, ‘When the world starts to look scary, investors often turn to assets which they perceive to be "safe".
‘With a war escalating in the Middle East, at the same time as other ongoing conflicts around the world, global demand for gold from investors has risen. Combined with strong buying by central banks, the gold price has hit an all-time high.’
Find out more:What are the benefits of investing in gold?
As gold behaves differently to the stock market, having some of your overall investment portfolio put into gold will mean you’re better diversified. That way, if the stock market takes a hit, it won’t necessarily spell doom for all of your investments.
Over the long term, gold has also out-performed cash savings accounts. If you invested £1,000 in gold five years ago, it would be worth approximately £1,533 today - a 53% increase. But, it’s important to remember the past is not a guaranteed indicator of the future.
If, at the same time, you’d put the same amount away in the five-year fixed account offering the best interest rate, you’d have £1,145 - a much smaller increase of close to 15%.
Find out more:What are the downsides of investing in gold?
While investing in something tangible like gold might feel like a safe bet, its price can be volatile and you’ll risk being disappointed and out of pocket if you invest in it for a quick turnaround profit.
Unlike shares in a company, the price of gold isn’t linked to any kind of performance or profit - instead it’s about supply and demand. Investors are currently keen on gold but if it falls out of favour, your investment will take a significant hit.
Looking at the last five years, the performance of the US stock market has exceeded the returns of gold. If in 2019 you’d invested £1,000 in the UBS S&P 500 Index Fund, which tracks the performance of the 500 largest US public companies, you’d have £1,989 today - a nearly 99% increase. But, past performance will not necessarily repeat itself, so that's not to say the same will be true of the next five years too.
You also won’t get any dividend payments if you invest in gold, so won’t see any money back from your investment until you sell it.
If you’re interested in buying physical gold, you’ll also run the risk of losing the value of your investment if you fail to properly store or insure it.
Gold mining also causes significant environmental damage - both through the energy required to carry it out and the damage caused at mining sites through mercury and other chemical pollution.
For example, Earthworks found that The Grasberg Mine in Indonesia, one of the largest gold mines in the world, dumped more than 200,000 tonnes of mine waste every day - completely destroying surrounding ecosystems.
Find out more:How do you buy gold?
You can buy physical gold coins or bullion (the typical gold bars you might see), or as jewellery.
It’s best to buy from a reputable seller to avoid scams - sovereign mints, like the Royal Mint or equivalents in other countries, are government regulated and so have the added benefit of their gold being legal tender.
If you buy a physical form of gold, you’ll need to factor in the costs to store and insure it if you want to preserve its value.
To avoid that hassle if you don’t like the sound of it, you can invest in Digital Gold through the Royal Mint. This investment is backed by a portion of a gold bar held in their vault - but you’ll need to pay management fees of 0.5% the market value of your gold, on top of your initial investment.
You can invest in shares of gold mining companies as another way to benefit. There is a lag between gold prices rising and mining share prices - the FTSE gold miners index has actually declined 2% over the last year.
Find out more:How much does gold cost to buy?
The ‘price of gold’ we’ve discussed here (currently at £1,907) is different to what it would cost you to invest. This price is per troy ounce (a form of measurement specifically reserved for precious metals) of gold in its unallocated form.
A 500g Gold Bullion Cast Bar from the Royal Mint will set you back £31,251.08, or alternatively a Britannia 1g Gold Bullion Minted Bar costs £90.52. Prices of gold at the Royal Mint are higher than the price of the metal, because it covers production and design costs too.
As of today, investing in the iShares Physical Gold ETC GBP would cost £37.06.
source https://www.which.co.uk/news/article/should-you-invest-in-gold-a93Bn1t23eSP