Gold at record high price: the best ways to invest and make a profit
The value of gold has hit a new record high as investors seek out safe haven assets ahead of the Budget and ongoing geopolitical uncertainty in the Middle East.
The London Bullion Market Association (LBMA) gold price rose to $2,083.15 (£1,642.96) per ounce on Monday morning, surpassing the previous record of $2,078.40 set at the end of December.
The association provides the global benchmark price for unallocated gold delivered in London, the biggest gold trading centre in the world.
Analysts do not think there is one reason for the record highs but investors have been buying up the precious metal amid heightened tensions in the Middle East and the threat of inflation caused by the shipping crisis in the Red Sea.
Gold started the year at $2,074.90 an ounce and besides three days in mid-February, the price of gold has not dropped below $2,000 an ounce.
At times of economic uncertainty traders rush to buy gold, which offers stability and diversification to portfolios. The metal is considered a safety net against inflation, and its price has risen gradually since the cost of living began to soar.
Traders are also putting their money into gold as the Chancellor prepares to unveil his Budget on Wednesday, as Jeremy Hunt scrambles to find room to announce pre-election tax cuts.
Global central banks bought a net 800 metric tons of gold in the year to September, as markets price in aggressive interest rate cuts next year.
Traders are betting there is a 59pc chance of a US interest rate cut as early as March, up from 20pc a week ago.
But if you want to stabilise your holdings with gold, what do you need to be aware of? Let’s take a closer look.
A record number of gold investors
Last year it recorded its highest ever number of people investing in gold, up 7pc year-on-year. This was on top of a 26pc increase in the number of gold investments in 2022.
Andrew Dickey, the Mint’s director of precious metals, said: “We have continued the development of our smaller, fractional products allowing entry-level investment right up to our six-figure investment options. This has allowed more investors to purchase gold with us.”
By introducing smaller-sized gold coins and bars, known as “fractional products’’, it has lowered the entry point meaning customers can invest in gold from as little as £75. In 2023, it made up 77pc of all investments made at the Royal Mint.
Mr Dickey said: “More customers made gold investments last year than during the lockdown investing boom in 2020, highlighting the continued appeal of the asset class.”
Gold is viewed as a safe haven
Research from the World Gold Council has found that during recessions, gold prices typically fare well, delivering positive returns in five out of the last seven downturns.
Andrew Dickey, the Mint’s director of precious metals, said: “At a time when financial markets are more unpredictable, investors are taking active steps to protect their portfolios. From our experience, gold and precious metals grow in popularity during challenging times for the global economy as investors look to diversify their portfolios.”
This is a view shared by Walid Koudmani, of financial broker XTB.
He said: “Gold is considered by many to be a way to hedge against inflation. It has also been seen to react positively during times of economic pessimism.”
Josh Saul from The Pure Gold Company, added. “While the price is not guaranteed to rise, the history of gold has proved its worth as a safe-haven asset which tends to go up when other assets are falling.”
Over the past few decades, gold has delivered an increase in value. There has been a general upward trajectory in the price since the early 2000s, albeit with some significant volatility along the way.
Investing in gold is risky
With the price of gold reportedly increasing by an average of 10 per cent per annum over the last 20 years, it can appear a lot more attractive than the returns on global stocks or cash.
But you need to tread very carefully. As with shares, the price of gold is volatile.
Ms Daniels-Daw said: “Just like any investment, putting money into gold is risky. People can be surprised to learn that the price of precious metals fluctuate a lot, and that the price they pay for gold or fine jewellery could be different from year to year – and even month to month.”
While gold may be seen as a safe haven, investors should not equate this with price stability.
Mr Khalaf said: “People tend to flock to the precious metal in times of financial stress, but gold is volatile, and steep losses can be incurred. Between 1980 and 1982, the gold price fell by more than 60 per cent, and between 2011 and 2015, it fell by around 45 per cent.”
High interest rates can be bad news
Investors also need to be aware that high interest rates can be negative for gold.
Mr Khalaf said: “Gold pays no interest, so looks less attractive compared to other safe havens, such as bonds and cash, when yields rise.”
Last week, the Bank of England’s chief economist warned interest rate cuts are still “some way off”, even if inflation falls below 2pc.
Huw Pill said policymakers should not be led into a “false sense of security” if inflation falls below the target rate.
“In my baseline scenario the time for cutting Bank Rate remains some way off,” he said.
And while the bank rate remains at 5.25pc, it means investors could feel safer investing in yield-bearing assets.
Mr Khalaf said: “Conservative investors may be tempted away from gold, back to their natural habitats.”
So should you buy gold?
The best approach is to see the value of gold as offering a bit of diversification in a portfolio. This is because it behaves differently from other assets, especially shares.
Mr Khalaf said: “An investor might hold bonds and gold alongside shares, as they will tend to perform well at different times. But it isn’t the short-cut to riches.
“As the historical returns show, gold does come with significant risks attached.”
How much should you hold?
As with any other investment, the key is to spread your risk.
According to Mr Khalaf, investors should limit their investment in gold to 5 per cent and 10 per cent of their portfolio.
When’s the right time to buy?
If you remain confident about gold, it is worth timing your moment to make the plunge.
Mr Koudmani said: “Gold tends to perform very well when inflation is high, so now could be a good time to start investing, to protect your money.”
How to invest in gold
You can buy physical gold in the form of jewellery, but should always go to a reputable jeweller.
Ms Daniels-Daw said: “Note that there is typically a mark-up to cover the manufacturing or labour costs.”
While it’s also possible to purchase physical coins and bars, you need to think about storage. If you plan on keeping gold at home, it’s advisable to invest in a high-security safe, and ensure you have sufficient insurance cover in place. That said, it’s a lot more secure if held under lock and key in a vault.
Mr Dickey said: “While many people aspire to owning large gold bars, more affordable routes include owning fractional amounts of gold bars via digital gold products, such as DigiGold.”
These are held securely in the Royal Mint’s vault. Expect to pay around 1 per cent of the value of your gold, plus VAT.
Elsewhere, services such as BullionVault enable you to purchase gold online to be held on your behalf in vaults. The Pure Gold Company uses a third party storage company, Loomis.
With any bullion trader, be sure to check costs such as storage and insurance.
Equally, many investors now opt to invest in ETCs (exchange-traded commodities) – stock market funds designed to track the moving price of an asset, such as gold.
Mr Khalaf said: “These funds can be held within Sipps – self-invested personal pensions – and Isas to protect profits from capital gains tax.
“Most investors should stick to physically-backed ETCs, such as iShares Physical Gold ETC. While some funds invest in gold futures, such instruments are complex and risky.
“The vast majority of gold investors are best off sticking with plain vanilla gold ETCs which simply buy and sell the precious metal itself.”
Tax advantages
You do not have to pay VAT on investment-grade gold, such as bullion bars and coins. And, if you buy Royal Mint coins that are legal tender, these will also be exempt from capital gains tax.
In it for the long term
Once you’ve invested in gold, you need to take a long-term view, as you may have to wait some years before being able to sell for a profit.
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This article is kept updated with the latest information.
