Gold price: the latest analysis and our fund picks

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.

What are the prospects for gold now?

Gold has largely surpassed expectations this year, breaking out of a trading range around the $2,000 level in January and forging on to new record highs around and above the $2,400 mark by July. That puts gold among the world’s best performing assets year-to-date².

The factors driving up gold certainly look as if they’ve got staying power. Although expectations about the outlook for US interest rates have been volatile, a fall in US inflation in June means that interest rate cuts are firmly back on the agenda. Markets currently anticipate an easing cycle to begin in September.

Meanwhile, expectations of a win for Donald Trump in November’s US election have intensified. This raises the prospect of a hiking-up of trade frictions with China. Such tensions might slow global trade and further depress China’s already sub-par growth, urging Chinese investors to continue their gold buying.

Up to now, gold has been held back internationally by its lack of yield, which has put it at a disadvantage compared with shares, bonds and cash. However, we’re now fast approaching the time at which this yield disadvantage is diminishing.

Impressively, gold has risen even during a period of dollar strength. A strong dollar tends to depress the gold price, as fewer dollars are required to buy an ounce of gold.

So far this year, the dollar has risen by about 3% against a basket of other world currencies³. The dollar might very well move into reverse gear once the Federal Reserve starts to cut rates or if the US economy starts to weaken.

That gold has risen impressively in this environment suggests there is strong underlying investor support. There could be another push forward as interest rates finally start to fall and investors, through exchange traded funds and other means, act to capture the upside in gold.

What are the risks for gold?

Given the current market preoccupation with US interest rates, any future disappointment on this front poses a significant risk. Worse than anticipated inflation data coupled with a more hawkish Fed might turn sentiment against gold.

In the real world though, the Fed risks driving the US economy back to the edge of a recession if it holds out for too long on rates, something it will not be inclined to do. Miscalculation resulting in an economic decline would also be gold positive.

A soft landing for the world economy featuring both moderate growth and low inflation would pose a risk for gold. Such conditions are favourable for shares and bonds, and the attention would most likely switch away from gold under this scenario.

Another ever-present risk is gold’s potential to behave like a risk asset over short periods. This facet of gold’s nature tends to come to the fore in crisis conditions when investors are fleeing markets by selling their most liquid assets first. This happened most recently in early 2020, when investors sold gold to meet margin calls on other assets⁴.

Central bank buying drying up is another possible risk. However, this doesn’t seem likely in the short term. The World Gold Council’s spring survey of gold buying intentions showed 29% of the world’s central banks were planning to add to their gold holdings over the following 12 months. That’s the most since the survey began in 2018⁵.

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.

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

Investing ideas

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

The iShares Physical Gold ETC has a very strong association with the price of gold. Fidelity’s experts like this exchange traded commodity (ETC) because it is underpinned by a physical entitlement to gold and because of BlackRock’s success in running this strategy for some time. The gold owned by this fund has been responsibly sourced.

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.

Generally speaking, investing in the shares of gold mining companies is advantageous when gold is trending 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 Ninety One Global Gold Fund has benefitted from these dynamics over the past six months.

This relationship doesn’t always work out though. 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 a high profit margin. Such factors mean the prices of gold miners can deviate significantly from the gold price, especially over shorter periods.

More on iShares Physical Gold ETC

More on Ninety One Global Gold Fund

Past performance is not a reliable indicator of future returns.
Source: Refinitiv, total returns in US$ terms from 30.6.19 to 30.6.24. Excludes initial charge.

Source:

¹ World Gold Council, 22.07.24
² Bloomberg, 23.07.24
³ Bloomberg, 23.07.24
⁴ Bloomberg, 28.02.20
⁵ World Gold Council, 18.06.24