Should I invest in gold?

SHOULD you invest in gold? There’s certainly a case for it. The precious metal has long been a staple in an investment portfolio. It comes with benefits like diversification and a lack of correlation with other investments such as shares.

How much should you invest in gold?

Well, it depends on your risk tolerance and financial goals.

Gold has proved its value as a haven for investors against the backdrop of market uncertainty. Historically it has retained its value during volatile periods such as the 2008 financial crisis.

This year, gold has had to contend with high inflation and consequent interest rate hikes. But it’s not all bad news.

The World Gold Council’s latest Gold Demand Trends report reveals a mixture picture, with the gold price near average highs for quarter 1 (Q1) at $1,890/oz¹. 

Central banks helped boost demand, adding a whopping 228 tonnes to global reserves, a Q1 record high.

It emphasises the yellow metal’s role in international reserve portfolios during times of market volatility and heightened risk.

Although holdings of global gold ETFs fell slightly during Q1, outflows in January and February were partially reversed by inflows in March - the first time in 11 months that ETF holdings have increased.

Louise Street, senior market analyst at the World Gold Council said that turmoil in the banking sector, geopolitical tensions and a challenging economic environment means that gold’s role as a haven asset has come to the fore.

She predicts that investment demand will grow in the year ahead, especially if headwinds reduce from the strong US dollar and interest rate hikes.

Although, consultancy Metals Focus suggested that gold prices could be under pressure in the second half of 2023, citing that the Federal Reserve still has room to keep interest rates higher for longer².

Two funds to invest in

If you’re looking to include some exposure to gold in your portfolio, you may want to consider two funds on our Select 50.

It includes the Ninety One Global Gold Fund formerly known as the Investec Global Gold Fund. This fund invests in a diverse portfolio of gold mining companies worldwide.

It also purchases physical gold funds (gold ETFs) and shares in companies that mine for other precious metals.

Investing in the shares of gold mining companies comes with a potential benefit when gold is moving 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 second fund is the iShares Physical Gold ETC. This fund has a closer link to the gold price and is backed by a physical gold entitlement.

Source:

¹ World Gold Council, 5 May 2023

² Mining.com, 7 June 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.