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.

Gold is back proving its mettle again this month, underpinned by expectations of lower interest rates, geopolitical concerns and growing caution around whether or not stock markets have gotten ahead of themselves. Gold has risen to a new record high, in the process adding over $110 to the gold price in just six days1.

What drives the gold price?

Over time gold has exhibited varying facets to its nature in different circumstances. In general, it performs well in times of political or economic uncertainty that cause investors to seek safe haven assets.

In addition, events causing a drop in the buying power of paper assets – quantitative easing or excessive inflation – drive up the underlying value of gold and tend to do the same to its price.

That’s because gold is a real asset that can’t be printed. New supply is severely limited. When the demand for gold rises, the price generally goes with it. It’s estimated that all the gold ever mined would still fit into a 22 metre cube2.

A weak US dollar also drives a stronger gold price, as more dollars are needed to buy an ounce of gold. That’s not the case this time. Since the beginning of this year, the dollar is up almost 2% against a basket of international currencies3.

Expectations of lower interest rates and falling real yields are a factor though. Since gold provides investors with no income, it becomes more attractive compared with cash and government bonds when interest rates fall.

Markets currently attach a 56% probability to a cut in US rates after the US Federal Reserve’s policy setting meeting in June4.

More unusually, gold can behave like a risk asset. We saw examples of this during the global financial crisis, when certain types of investment funds were propelled to sell their most liquid assets to offset portfolio losses elsewhere. Under this relatively rare scenario, the gold price can fall at the same time as shares.

Has gold been a good investment?

Gold has proven its worth over time as a store of value that maintains its buying power. In “worst case” scenarios, gold is still the asset many investors look to as a safe haven option. 

Importantly, gold tends to benefit from just the kind of events other assets like shares and bonds don’t like. It therefore has the proven capacity to act as an effective diversifier. It can help smooth out the returns of investment portfolios composed mainly of other assets.

Returns this century from gold have been strong. Starting out from around $279 per ounce in January 2000, the bursting of the dotcom bubble, the 9/11 attacks in New York in 2001 and subsequent wars in Iraq all drove a strong uplift in demand for gold.

Just prior to the global financial crisis in 2007, gold had risen to around $660 per ounce. The crisis itself, advent of quantitative easing as a key central bank tool and a succession of sovereign debt crises in Europe helped to extend gold’s advance to around $1,855 per ounce by September 2011.

Then came a bear market for gold that was to last for about seven years. The gold price marked a low at around $1,061 in November 2015 before exiting this bear market in 20185. Since then, the Covid pandemic and the re-inflationary shocks that have followed have helped drive gold into new record territory with only relatively minor setbacks along the way.

What returns have gold fund investors achieved?

Investing in the shares of gold mining companies has a potential advantage 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.

This relationship doesn’t always work out, especially over shorter time frames. Gold mining companies transition through stages just like other companies. 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 annual profits.

Such factors mean the prices of gold miners can deviate substantially from the gold price over shorter time frames. After a positive 2022, this happened in 2023. Gold mining shares fell in aggregate despite a small rise in the gold price.

The poor progress of shares in the world’s two largest gold miners – Newmont and Barrick Gold – played its part. Newmont’s $17 billion acquisition of Australia’s Newcrest weighed heavily on the former, as investors considered the complexities of the deal against a background of falling output. Meanwhile, disappointing production rates and a shift to copper exploration raised questions at Barrick. 

To make matters worse, investors were heavily locked into developments among US tech companies and the hyperbolic growth of artificial intelligence (AI). By comparison, old economy shares mostly bumped along the bottom, both in terms of their share prices and earnings multiples. 

What are the prospects for gold and gold mining funds now?

How well gold performs from here could depend on how quickly interest rates actually fall versus consensus expectations. As usual, wildcard, negative events in geopolitical terms or an unexpected retracement in stock markets could deliver a further boost.

Gold has already exceeded Capital Economics’ year-end target of $2,100 per ounce and even its $2,150 per ounce target for the end of 2025, implying limited further upside over the short term6.   

Earlier this week, the Australian bank ANZ reiterated its long-term positive view of gold and expectation that prices will average over $2,000 per ounce in 20247.

Positively for medium sized and smaller gold miners, last year’s disconnect between the gold price and gold mining shares may now encourage more large miners to embark on the acquisitions trail.

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 SIPP. On the other hand, gold funds can be held this way.

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

What are the Select 50 options?

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

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.

The second gold fund among the Select 50 – the iShares Physical Gold ETC – has a closer association to the gold price and is backed by a physical gold entitlement. As such, it may not be the best fund to own when shares in gold mining companies are providing all the excitement, but it may prove more defensive during periods when gold is out of favour.


1 Bloomberg, 07.03.24
2 World Gold Council, 08.02.23
3 Bloomberg, 07.03.24
4 CME FedWatch Tool, 07.03.24
5 World Gold Council, 07.03.24
6 First Gold, 05.02.24
7 Reuters, 06.03.24

Important information - Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. 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. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). 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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