How to Invest in Gold as Prices Hit Record Highs

Gold prices have risen to record highs on a combination of geopolitical unrest and hopes of interest rate cuts.

The price of the precious metal rose to $2,529.75 (£1,936.41) an ounce this week, marking a gain of 22 percent since January.

Gold interest rates and US interest rates tend to work in opposite directions. That is, when gold prices rise, interest rates fall, and vice versa.

However, this is not always the case, as gold also tends to rise during times of unstable geopolitical conditions or economic uncertainty, as we have experienced over the past two years.

The precious metal is often seen as a kind of insurance policy that performs well in times of market stress.

We look at whether now is a good time to invest in gold and how you can benefit from it.

The Recent Performance of Gold

Gold is normally expected to underperform in a high interest rate environment as it does not provide investors with income.

This makes it relatively unattractive when decent returns are possible with lower-risk assets such as bonds and cash.

With the Federal Reserve considering cutting rates as early as September, gold has become a more attractive alternative.

At the same time, a weaker dollar lowers the costs for buyers of other currencies.

Ultimately, gold benefits from its reputation as a safe haven at a time of increased geopolitical uncertainty.

Why is gold an attractive investment?

The important thing to know is that gold is not a quick way to get rich, but rather a form of portfolio insurance. According to experts, gold should not exceed 5 to 10 percent of your total wealth.

But gold has always been an attractive asset for investors, for a number of reasons.

First, it can serve as a diversification tool in a balanced portfolio.

It behaves differently than bonds and stocks and can provide a smoother ride over time.

For example, last year it ended about where it started, after some big ups and downs, helping to offset the declines for both stocks and bonds in 2022.

Laith Khalaf, head of investment analysis at broker AJ Bell, said: ‘The value of the precious metal lies in its ability to serve as a diversifier in a portfolio because it behaves differently to other assets, particularly equities.’

Tom Stevenson of Fidelity International said: ‘Another reason to hold gold is its stability over long periods. Gold has been valued as a store of value since ancient times and tends to hold its real inflation-adjusted value over time, even if it can be extremely volatile in the short term.

‘If you own gold, it is wise not to keep a close eye on the price. There is a good chance that you will be taken out of your investment at some point if you feel down.’

Gold tends to retain its value even in times of stress. It is therefore no coincidence that in the current uncertain times, central banks worldwide are stocking up on gold.

One of the reasons gold retains its value is its scarcity. Its supply is also limited. The availability of new gold has hardly increased in recent years, partly because the easy gold has already been mined.

However, this does not mean that the gold price is not volatile. It is, and it is easy to suffer large losses.

Khalaf said: ‘Between 1980 and 1982, the price of gold fell by more than 60 percent, and between 2011 and 2015, the price fell by about 45 percent.’

How to Invest in Gold

There are a few ways you can get acquainted with the precious metal.

You can invest in gold yourself via Exchange Traded Commodities (ETCs). Following the gold price in this way is no different than holding a passive investment in a stock market index.

These are listed funds that give investors insight into the gold price. This exposure is secured by physical gold bars that are held in secure vaults.

You can hold ETCs in a Sipp or Isa to shelter profits from tax. Investors should be wary of ETFs that gain exposure through derivatives rather than physically holding the precious metal, as these are complex and can involve costs that are not immediately apparent to the naked eye.

Khalaf said: ‘For exposure, investors could consider iShares Physical Gold ETC.

While Hollands adds: ‘Our favorite ETC in this area is the Invesco Physical Gold ETC GBX has a low annual fee of 0.12 percent and is backed by gold bars stored in the vaults of JP Morgan Chase Bank in London.

“We have this in a number of ready-made portfolios.”

Another way investors can gain exposure to gold is through multi-asset funds.

Dutch loves Personal Wealth Trust PLCan investment trust managed by Troy Asset Management, which currently has 12 percent in gold-related investments (of which 10.8 percent is in physical gold).

The company also has significant exposure to U.S. inflation-protected Treasuries, equities, short-term government bonds and cash.

Finally, you can invest in gold by purchasing physical bars or coins.

One way is to physically purchase gold items and store them at home (which requires adequate security and insurance) or, for a fee, store them in a secure vault, such as the Royal Mint.

Certain gold coins issued by the Royal Mint have legal tender status and are therefore exempt from UK capital gains tax (and VAT).