Gold’s lustre may fade

Gold was overshadowed by equities and base metals in 2017, with the latter climbing by 25%. Yet the yellow metal still rose by around a tenth. This year, however, it may not fare so well.

Gold thrives on bad news, but the world economy has finally shaken off its post-bubble hangover and is starting to motor. As growth rises towards its pre-crisis highs in both emerging and developed markets, investments traditionally considered safe havens will struggle. Gold has no yield, so rising interest rates, especially in the US, dent its relative appeal.

The bitcoin buzz isn’t helping: cryptocurrencies, like gold, are a medium of exchange that can’t be endlessly reproduced, and thus debased, in the way that paper currencies can. It is telling that late last year the number of Google searches for “buy bitcoin” overtook those for “buy gold” for the first time, as Bloomberg points out. 

Nonetheless, keep 5%-10% of your portfolio in gold. Several geopolitical flashpoints could frighten investors, while inflation could make an unexpectedly strong return if wage growth finally takes off in America and Britain – reminding markets that gold has been a store of value for centuries.