Gold price: the latest predictions and our fund picks

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.

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.