Gold price: the latest analysis and our fund picks

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

What are the prospects for gold now?

Gold has beaten expectations this year, breaking out of a trading range around the $2,000 level in January 2024 and forging on to new record highs over $2,700 in October. That puts gold among the world’s best performing assets year-to-date².

Central banks have been a strong driving force, buying gold to help diversify or hedge their reserves. In the first half of the year, central banks bought 483 tonnes of gold, the most on record³.

The prospect then actuality of falling interest rates in the US has also helped the gold price. Gold produces no yield, so a reduction in the yield of competing assets like bonds and cash increases its relative attractiveness.

Moreover, lower US interest rates tend to lead to a weaker dollar resulting in more dollars being needed to buy an ounce of gold.

We saw this happening through the summer, although the dollar has recently recovered some lost ground following stronger-than-anticipated data from the labour market and an intensification of military actions in the Middle East. Year-to-date, the dollar has risen by just over 2% against a basket of other major world currencies but these gains could quite easily be given back as rates are cut further⁴.

Geopolitics remains an underlying support, particularly given the very real prospect of a ratcheting up of trade tensions with China in the event of a second Trump presidency. Such tensions could slow global trade and further depress China’s already sub-par growth, encouraging Chinese investors to continue or resume their gold buying.

Finally, it’s worth noting that gold is considerably less expensive when adjusted for US inflation than it was at the time of its 1980 peak⁵. That could ease any fears that gold’s recent rally is overblown.

What are the risks for gold?

Any future disappointment over the passage of US interest rates poses a significant risk. Worse than anticipated inflation data coupled with a more hawkish Fed might turn sentiment against gold.

In the real world though, the Fed risks driving the US economy back to the edge of a recession if it fails to reduce rates either fast or far enough, something it will not be inclined to do. Miscalculation resulting in an economic decline would also be gold positive.

A “soft landing” or “no landing” for the US economy featuring both moderate growth and low inflation would pose a risk for gold. Such conditions are favourable for shares and bonds, and the attention would most likely switch away from gold under this scenario.

Another ever-present risk is gold’s potential to behave like a risk asset over short periods. This facet of gold’s nature tends to come to the fore in crisis conditions when investors are fleeing markets by selling their most liquid assets first. This happened most recently in early 2020, when investors sold gold to meet margin calls on other assets⁶.

Central bank buying drying up is another possible risk. The rate at which central banks bought gold dipped in the second quarter compared with the first. Even so, the amount bought was still 183 tonnes, which was above the five-year quarterly average of 179 tonnes⁷.

Can I invest in gold in my ISA or SIPP?

The purest gold investment is in bullion or gold coins, but neither of these can be held in an ISA or a SIPP. On the other hand, gold funds can be.

Gold funds offer a way of investing in gold without physically holding it, and are predominantly of two main types – gold price trackers and funds that invest in the shares of gold mining companies.

Investing ideas

Fidelity’s Select 50 list contains two funds that provide a gold exposure. They entail differing performance characteristics and levels of risk.

The iShares Physical Gold ETC has a very strong association with the price of gold. Fidelity’s experts like this exchange traded commodity (ETC) because it is underpinned by a physical entitlement to gold and because of BlackRock’s success in running this strategy for some time. The gold owned by this fund has been responsibly sourced.

The Ninety One Global Gold Fund, previously the Investec Global Gold Fund, invests in a worldwide portfolio of gold mining companies while also having the flexibility to buy physical gold funds and shares in companies that mine for other precious metals.

Generally speaking, investing in the shares of gold mining companies is advantageous when gold is trending higher. Gold miners generally have high fixed costs, meaning that a small percentage rise in the price of gold can generate a disproportionately large increase in gross mining profits. The Ninety One Global Gold Fund has benefitted from these dynamics over the past three months.

This relationship doesn’t always work out. Smaller companies especially may need additional capital from shareholders to expand. Larger, more established companies may be under pressure to return money to shareholders by way of dividends or share buybacks. Or they may be on the acquisition trail, more focused on capturing market share than a high profit margin. Such factors mean the share price performances of gold miners can deviate significantly from changes in the gold price, especially over shorter periods.

More on iShares Physical Gold ETC

More on Ninety One Global Gold Fund

Past performance is not a reliable indicator of future returns.
Source: Refinitiv, total returns in US$ terms from 30.9.19 to 30.9.24. Excludes initial charge.

Source:

¹ World Gold Council, 22.07.24
² Bloomberg, 21.10.24
³ World Gold Council, 30.07.24
⁴ Bloomberg, 17.10.24
⁵ Reuters, 17.10.24
⁶ Bloomberg, 28.02.20
⁷ World Gold Council, 30.07.24