Gold prices have registered a new all-time high today (2 September) as the yellow metal surged past $3,500.
Gold prices have risen 38% in the 12 months to September. Having briefly hit the $3,500 mark on 22 April, the spot gold price had appeared to settle within the $3,245-$3,450 range since late May.
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But the price of gold gained over 3% in five days to the morning of 2 September, when it reached $3,508.79, gold’s latest all-time high.
US policy, both domestically and internationally, appears to be driving the market jitters that have led to the latest gold price surge.
“Continuing uncertainty over US trade policy and Donald Trump’s attempts to undermine the independence of the Federal Reserve Bank (Fed) is driving renewed interest in safe haven assets,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
Throughout the morning, gold prices then fell back to below $3,480. But with many of the structural drivers of gold price strength still in play, could the gold rally continue further from here?
Which factors are pushing the gold price up?
According to Hector McNeil, co-founder and co-CEO of HANetf, the gold price rally is being driven by central bank purchasing, US dollar weakness and the prospect of imminent cuts to US interest rates from the Fed.
“Investors are also looking towards the precious metal as a hedge against risk,” McNeil adds. “Gold has become a source of stability in a more uncertain, and geopolitically unstable, world.”
Increased central bank gold purchases were the initial catalyst for the gold price rally.
"From a big picture standpoint, central bank buying of gold has increased over the last few years," says Paul Syms, head of EMEA ETF fixed income and commodity product management at Invesco, "particularly following the start of the Russia-Ukraine conflict which saw a shift in reserve allocation away from the US Dollar and US Treasuries."
The uncertainty caused first by the ongoing conflicts in Ukraine and the Middle East has given further support to gold prices, prompting investors the world over to look for ways to protect their investments.
“In the past, investors had favoured US assets, such as bonds, to achieve this,” says McNeil, “but President Trump’s unpredictable tariffs have cast ideas of US stability into doubt.”
Could gold prices rise further?
There are still reasons to believe that gold prices could rise further this year. Despite hopes, talks over a peace deal in Ukraine have yielded no breakthroughs as yet.
The Fed cutting interest rates should also be supportive for gold prices (which are quoted in dollars). Gold pays no interest, so low interest rates increase its appeal relative to bonds. Interest rate cuts are also implicitly inflationary, and gold is often viewed as a hedge against inflation.
While acknowledging that forecasting future movements is difficult, Syms believes that the backdrop for gold appears "supportive".
"Central banks are continuing to buy gold," he says, "and investor sentiment has become more positive, with investors appearing to buy dips rather than sell strength.
"Additionally, with rate cuts likely, US Treasury yields and the Dollar could fall, both of which tend to be supportive for gold."
How to gain exposure to gold prices
There are three main ways to invest in gold. The first one is investing in the metal itself through a financial contract, such as an exchange-traded fund (ETF) or exchange-traded commodity (ETC).
Investments into these kinds of products are another factor helping to support gold prices this year.
“Since the start of the year, European investors have added more than $6.5 billion to gold ETC holdings,” says McNeil. “That represents a marked difference to last year, which saw gold ETCs register outflows.”
See our article on the best gold ETFs for more information.
You can also get indirect exposure by investing in the miners that dig gold out of the ground. This can be done by investing directly in their shares, or by buying a gold fund or investment trust. Note that gold miners don’t always rise with the gold price, as other company-specific factors are at play.
Lastly, you can buy physical gold bars or gold coins.
In terms of how much gold to hold in a portfolio, Tom Stevenson, investment director at Fidelity International, suggests around 5-10% is a good amount – which is about the same as you might hold in cash.
“The two offer insurance and dry powder to complement the growth and stability of the shares and bonds that make up the bulk of a balanced portfolio,” he comments.
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