Interactive Investor

Gold’s hitting new highs – why it’s rising and how to invest in it

Despite rising bond yields, gold is one of the top-performing investments this year.

11th April 2024 11:17

by Sam Benstead from interactive investor

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Four gold ingots

The price of gold has risen to more than $2,330 (£1,833), a 13% increase so far this year. 

Accounting for currency changes, sterling investors in gold are up around 15%, as a slightly weaker pound has increased the amount that gold, which is priced in US dollars, is worth for UK investors.  

But the reasons for the ongoing rise are not straightforward.  

The gold price generally moves on interest rate changes. This is because interest rates affect the yield on offer from the other key safe-haven assets: bonds issued by the US and UK governments. 

Because gold pays no income, it becomes relatively less valuable when interest rates (and bond yields) rise, meaning that its price is often inversely correlated to moves in interest rates. Investors can now get around 4% annually from lending to the US and UK governments, whereas two years ago the return was closer to 1%.

When rates were rising quickly in 2022, catching investors out, gold fell suddenly. However, now that investors expect central banks to rein in rate rises, gold has recovered. 

However, bond yields have been rising this year, but this has not had a negative impact on the gold price.  

Gold is also seen as a hedge against inflation, but inflation has been falling consistently, and is now at just 3.5% in America and 3.4% in the UK. 

But Sebastian Lyon, manager of the Personal Assets Ord (LSE:PNL) Trust, says the dynamics behind gold movements have changed, which supports higher prices. Personal Assets has 12% in gold-related investment. 

He gives three reasons for the rising gold price.  

“First, central bank buying has been highly supportive since the invasion of Ukraine two years ago. Second, geopolitical risks remain elevated, whether it is the worsening relations between major powers or the deterioration of conditions in the Middle East. Finally, as we approach the presidential election, there is an awareness of ever-increasing government debt levels in the United States,” Lyon said.  

He therefore says that the rising gold is beginning to reflect the probability that inflation will be sticky as central banks choose easier monetary policy over a burgeoning interest expense.

“This is no bubble. Western investors have been reducing exposure to gold over the past three years, as gold ETCs (exchange-traded commodities) have suffered material outflows,” Lyon concludes. 

How to invest in gold 

Adding gold to a portfolio does not require investors to buy gold bars or coins and lock them away in a safe. 

Instead, investors have a range of exchange-traded fund (ETF) options to choose from. These funds can own physical gold, locked safely away in a vault, but are trading on the stock exchange, allowing easy access.  

iShares Physical Gold ETC is on the interactive investor Super 60 list of investment ideas. There is also a currency hedged version as well, so movements in the pound/dollar exchange rate do not affect performance. 

Dzmitry Lipski, head of funds research at interactive investor, said: “This is a soundly constructed fund with low fees leaving it well positioned to provide good risk-adjusted returns relative to peers over the long term. This is an inexpensive fund tracking a well-defined benchmark.” 

Other popular gold exchange-traded funds include Invesco Physical Gold ETC and WisdomTree Physical Gold, while VanEck Gold Miners UCITS ETF buys gold mining companies.  

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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