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Gold rises to near record highs even as interest rate cut hopes fade

One kilo gold bars are pictured at the plant of gold and silver refiner and bar manufacturer Argor-Heraeus in Mendrisio, Switzerland, July 13, 2022. REUTERS/Denis Balibouse
Gold prices are hovering over record high levels. (REUTERS / Reuters)

Gold is shining bright among investors even as faith that central banks will make hefty cuts to interest rates this year dims.

The spot price of gold (GC=F) has risen to $2,354.20 per ounce, hovering near record highs, meaning gold has now risen over 14% since the start of 2024.

“Strong underlying momentum with the buy-on-dip still the prevailing strategy among traders,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Geopolitical risks related to Russia/Ukraine and the Middle East are still playing a supporting role, and the focus is changing from the negative impact of lower rate cut expectations towards higher and sticky inflation,” he added.

Why are gold prices going up?

Gold is traditionally seen as a safe-haven in difficult times, and as a hedge against inflation.

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The precious metal has had a record-breaking run since mid-February, boosted by expectations for US rate cuts, geopolitical tensions and China’s economic woes.

Futures traders have reduced bets on how much the US Federal Reserve will cut rates this year to the lowest level since October.

Traders now expect fewer than three quarter-point cuts to US interest rates this year, down from up to six cuts expected in January.

High interest rates usually constrain the appeal of holding non-yielding gold, but the precious metal has been ignoring these factors so far. The market is waiting for the US Federal Reserve’s policy meeting minutes and US inflation data due on Wednesday for fresh signals on future US rate path.

Read more: UK interest rate cut more likely as pay growth slows

Some central banks have also been adding to their gold reserves, with China’s central bank purchasing gold for its reserves for a 17th straight month in March.

Kristina Hooper, chief global market strategist at Invesco said that concerns around the US debt could be pushing some towards the precious metal.

“Then there is the concern about US debt and the long-term unsustainability of the US’ fiscal situation. That seems to have caused some central banks to increase holdings at the expense of US Treasuries,” she said.

Analysts at Bank of America said in a note that gold could rally to $3,000 per ounce by 2025.

If I had invested £100 in gold, how much would I have now?

Markets are volatile and therefore so are investments but given the safe-haven status of gold, the precious metal would have been a safe bet to park your money.

If you have put £100 in gold in 2023 you would now have £121. However, despite the precious metal rally, had you put those same £100 in bitcoin (BTC-USD), you would today have £396.

Surprisingly, this one commodity performed also as good as the cryptocurrency. Cocoa (CC=F) is up by around 270%, which would have secured you £373.

Amazon (AMZN) and Apple (AAPL) shares, two of the Magnificent Seven, would have also outperformed gold. However, their track record shows far more volatility that most investors might be comfortable with, as is the case with Bitcoin.

How do I invest in gold?

Gold falls under the category of alternative investments, named like that as they are usually defined as alternatives to traditional investment assets, such as bonds and equities. They can be anything from art to property, hedge fund investments, gold and gold funds, and digital assets.

For those wanting to protect their investment portfolio from market uncertainty, it is worth considering gold.

Anyone can invest in physical gold in the form of bars and gold coins. The Royal Mint has recorded a 7% increase in investors purchasing gold bullion last year.

Read more: FTSE 100 LIVE: European stocks push higher ahead of key US inflation report

However, it might be easier and cheaper to invest in gold through Exchange-traded funds (ETFs) or Exchange-traded commodity (ETC) products.

Another way to go about it is to invest in shares of gold mining companies, which should get you dividends as you are investing in a business and not purely on the precious metal.

Let's take a look at these three ways to invest in gold.

Should you buy gold coins or bullions?

31 January 2023, Hesse, Frankfurt/Main: A Gold Britannia 2023 gold coin is shown at the Rheinische Scheidestätte in Frankfurt. With inflation continuing to rise, many people are investing their money in gold. Photo: Boris Roessler/dpa
A Gold Britannia 2023 coin is shown. (dpa, dpa picture alliance)

It is probably the first image on our mind when we thing about the precious metal: a gold bar or coins. If you go down this route you are investing in the physical metal.

Gold coins are a popular choice but mostly for collectors as you will pay a premium for the design that you might not get back. However, some coins become more desirable for collectors over time so the gambit could pay off.

If you're not bothered by the aesthetic value of gold, the straight way to go about it is to get a cast bar. A 500g will set you back £30,565 if you purchase it from the Royal Mint.

Read more: King Charles gold bullion coin unveiled by Royal Mint

However, you can start smaller, with a 2.5g bar coming in at around £170. Regardless of what you get, make you the purity is above 99.9% for coins and 99.95% for bars, so that it is VAT free.

Gold and other precious metals are often weighed in troy ounces. At 31.1034768 grams, one troy ounce is about 10% heavier than a regular ounce.

Another thing to consider that is often misunderstood is the capital gains tax free nature of British legal tender coins.

"The sovereign and the gold and silver Britannia have a unique place as precious metal coins with a legal tender value. This means that any profits made over the lifetime of the investment are free of CGT when sold. Many clients overlook this issue as they are so concerned at purchasing physical metal and do not think about the other side, which is relevant when they come to sell," Paul Atkinson, co-founder at Atkinsons Bullion & Coins, told Yahoo Finance UK.

"A 500 gram gold bar would be subject to tax as much as 28% CGT when sold. The equivalent in gold Britannias or Sovereigns would not. There was an argument that a bar was cheaper when you purchase in the first place but that difference was a maximum of 1%, not 28%. In the current market you can buy coins as cheaply (low premiums) as a bar," he added.

How to invest in gold via ETFs or ETCs

The world's largest gold bullion coin, the Australian Kangaroo One Tonne Gold Coin, is displayed to mark the official launch of the Perth Mint Physical Gold Exchange Traded Fund (AAAU), outside the New York Stock Exchange (NYSE) in New York, U.S., July 16, 2019. REUTERS/Brendan McDermid
The world's largest gold bullion coin is displayed to mark the official launch of the Perth Mint Physical Gold Exchange Traded Fund, outside the New York Stock Exchange (NYSE). (REUTERS / Reuters)

If you look at gold purely as an investment and do not want to handle things like storage or purity levels you can pick to invest in an ETF or ETC.

These investment products are funds that consist of only one asset: gold. They trade just like a normal stock but gets its value from holding 'underlying assets' that are centred on the precious metal, like the physical metal, gold futures or exposure to companies that mine the metal.

The main costs of investing in gold ETFs will be the ongoing charge and any platform fees. You should also pay attention to where the product trades.

Most physical gold is priced in US dollars, so if an ETF or ETC operates in sterling then the USD/GBP (GBP=X) rate will likely play a role a significant role in its performance.

Looking at gold ETFs traded in the USA, the DB Gold Double Long Exchange Traded Notes (DGP) has returned 26% so far this year.

Read more: How to supercharge your pension this year

ProShares Ultra (UGL) has delivered 24.99% and Invesco DB Precious Metals Fund (DBP) has recorded a 14.09% gain since January, according to data from VettaFi.

If you want to keep things in pounds, you some top gold ETFs in the UK include the Invesco Physical Gold ETC (SGLPL.XC), that comes with a 0.12% fee, and aims to replicate the spot price movement of gold bullion as closely as possible.

There is also the iShares Physical Gold ETC (SGLNL.XC), for the same fee. This product has the particularly of only accepting gold bullion that meets the Good Delivery standards set by the London Bullion Market Association. All assets are classified as responsibly sourced, only allocating gold that was mined after 2022.

Best gold stocks and how to invest in mining companies

A worker prepares molten gold before it is poured into bars at the Akara Resources Chatree gold mine in Thailand's Phichit province on March 23, 2023. - A controversial gold mine in northern Thailand has restarted, pouring its first bars on March 23, six years after the government ordered it to suspend operations over health and environmental concerns. (Photo by Lillian SUWANRUMPHA / AFP) (Photo by LILLIAN SUWANRUMPHA/AFP via Getty Images)
A worker prepares molten gold before it is poured into bars. (LILLIAN SUWANRUMPHA via Getty Images)

Gold-oriented stocks and shares provide exposure to the commodity without the cost of buying and storing it.

You are investing in a company, just like you would do with any other listed business, but in this case you secure the exposure to gold but could potentially attain higher returns as gold companies can expand production and reduce costs, which can drive profits. As you own shares in the company, you could also be in line for dividends.

In the US, Galiano Gold (GAU) would have been your best bet. Shares in the company have gained 188%, considerably more than our number two.

Second place goes to Equinox Gold (EQX), with shares almost doubling. ElDorado Gold (EGO) shares come in at number three, with an 85% increase, according to data from investment platform AJ Bell.

Again, if you prefer to keep your investments UK-bound, investing in Empire Metals (EEE.L) would have secured you a 397% return in you invested at the start of last year. That means that £100 of shares are now worth close to £400. It is the best performing US-listed gold mining share since January 2023.

Serabi Gold (SRB.L) has climbed over 100%, meaning you would've doubled your investment, same with Resolute Mining (RSG.L).

As always, past performance is no guarantee of future results and gold should be part of a diversified portfolio.

Watch: Why are gold prices suddenly hitting record highs?

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