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.

THE war in Ukraine, China’s economic slowdown, rising inflation and volatile stock markets have all conspired to undermine investor confidence so far this year. In this environment, gold might have seemed the ideal asset to own, so have would-be gold investors now missed the boat?

To the frustration of longer term gold bulls, the answer is probably not. After seeing record inflows in 2020, the gold price languished last year and has yet to make a big splash in 20221.

It has tried, briefly breaching the $2,000 level in early March followed by another attempt just over a week ago2. However, it has been hamstrung by expectations the US Federal Reserve will now act quite aggressively to bring inflation under control.

The prospect of further US interest rate hikes add to the relative attractions of the dollar over real assets like gold that have no yield. Fewer dollars are then required to buy an ounce of gold, reducing its dollar price.

Uncertainty over Russia’s next move in the gold market is another reason for caution. Given that a substantial proportion of Russia’s assets have been frozen, there’s always the possibility some of the country’s gold – understood to be worth around $140 billion – could be sold to make payments3.

That said, the long-awaited big gold rally could still be on its way. The gold price – currently just under $1,900 – has, at least, displayed some stability since the turn of the year.

Meanwhile, bitcoin – which also headlines as a store of value – has tracked a volatile path that looks suspiciously similar to the fall then rise then fall again of US technology stocks.

Moreover, the world’s supply of gold fell by 1% last year, as a sharp decline in recycling more than offset increases in mine production4.

Historically, supply falls – for example, between 2000 and 2008 – have preceded multi-year bull markets for gold, although there’s no guarantee this will happen again5.

So it may be all that gold needs is a bit more time. Poor returns from shares have unsettled investors recently and any lack of improvement could spark moves into other asset classes.

It’s also worth remembering that gold always has the potential to help shield investors when the world throws us a curveball.

Events that could still further derail shares and bonds include: interest rate rises having unforeseen knock-on effects in emerging markets, or another outbreak of international tensions, for example, starting in the South China Sea or Iran.

Fidelity’s idea for a gold holding comes in the shape of the Ninety One Global Gold Fund – formerly the Investec Global Gold Fund. It features on Fidelity’s Select 50 list of favourite funds and is one of Tom Stevenson’s four Fund Picks for 2022.

Ninety One Global Gold invests in a diverse portfolio of gold mining companies worldwide. The top three are currently Agnico Eagle Mines, Barrick Gold and Newcrest Mining. It also has the flexibility to buy physical gold ETFs and shares in companies that mine for other precious metals, and currently has a 4.4% exposure to silver6.

Watch Tom’s view on the outlook for commodities in Q2.

Source:
1 Gold.org, 07.01.22
2 Kitco, 27.04.22
3 Reuters, 28.03.22
4 World Gold Council, 28.01.22
5 Our World in Data, April 2022
6 Ninety One, 31.03.22

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. The Ninety One Global Gold Fund invests in overseas markets so the value of investments can be affected by changes in currency exchange rates. The fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. The fund also uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The fund has or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques. 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.

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