Although it has been a rocky past few years for gold, with the price dropping to just over US $1,000 an ounce late last year, compared to its peak of around $1,900 in 2011, it has bounced back this year. So much so, that the eight best performing funds over the past year are all gold funds according to data from FE Trustnet.
There are a number of reasons for the rise, a major one being the UK’s Brexit decision. Investors consider gold a ‘safe haven’ in times of economic uncertainty, with the price rising to a two-year high the day the result of the vote was released. On the same day, BullionVault, an online gold and silver market place, said a record £30m in gold was traded by its users. Similar behaviour was seen during the 2008 financial crisis, as investors sought the certainty gold offers as currencies and stock markets slumped. Google announced that the number of online searches for ‘buy gold’ rose by 500 per cent in the 4 hours after the referendum result. Gold miners have largely benefited from the Brexit uncertainty, as UK-listed firms Randgold, Fresnillo, Centamin and Acacia have all reached three-year highs since late June and precious metal mining company Polymetal International recently joined the FTSE 100. With an ounce of gold now worth US $1,325, up from $1,257 on 23rd June and worth a quarter more compared to the end of 2015, investors will be watching gold and the many factors affecting its price.
Falls in the US Dollar, the currency in which gold is denominated, are known to affect the price in gold and recent drops are no different. These slumps make gold cheaper for foreign buyers, helping the price of metal rise. Furthermore, investors tend to move their money from the Dollar to gold when the currency falls. Another force pushing up the price of gold, and gold mining stocks, is interest rates. Gold benefits from a low interest rate economy, as it offers a home for investor’s funds when returns from cash savings are poor. With banks in Japan and Europe introducing negative interest rates earlier this year, this could be another reason for the rally. After Federal Reserve (Fed) chair, Janet Yellen’s speech at the Jackson Hole symposium, the metal rose 1.5 per cent after gold investors were relieved to find out that, although the prospect of a rate rise had ‘strengthened’, there was no indication that this would happen in September. Prices did drop slightly as Fed vice-chairman Stanley Fischer made bullish remarks on the US economy in an interview with CNBC. More recently, gold was on the rise again as lower-than-expected US job figures were announced last week, increasing expectations of the Fed refraining from raising interest rates this month.
Many experts are seemingly undecided as to whether investors should sell now or wait for more positive performance to come. Despite some believing, due to the likelihood of the current economic uncertainty continuing, investors will continue to seek out gold as a safe option, others are less optimistic. This is mainly due to the complexity of gold pricing and the large number of factors affecting it. So whilst those who have seen soaring investments in gold may wish to take their profits whilst they can, the future uncertainty may persuade others to wait for more to come.
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Please remember that investments and income arising from them can fall in value and you may lose some or all the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Please note this article is for information only and does not constitute a recommendation to invest in any of the securities mentioned.