Inflation will restore gold’s shine

Gold remains up by 53% since August 2018 but is now trading 11% short of its peak this summer. But if you hold gold, hang on to it.

Is the gold rally over? Gold hit a four-month low around $1,807 an ounce this week. The yellow metal remains up by 53% since August 2018 but is now trading 11% short of its peak this summer. The picture is similar in sterling terms, with gold 13% off its August high on around £1,352/oz. Gold is seen as a traditional safe haven. With positive vaccine news stoking optimism about 2021 investors are now keen to get exposure to the recovery rather than parking their wealth in an asset that pays no interest. 

Gold has not behaved much like a safe-haven this year, says Will Horner in The Wall Street Journal. “Rather than moving in the opposite direction to stocks” it has often rallied and fallen together with them. The reason seems to be central bank stimulus. When new money hits the market investors buy stocks to enjoy the resulting asset price inflation, while buying gold as protection in case everything goes horribly wrong. A “6,000-year history as a store of value” makes the metal the ultimate hedge for those concerned about inflation.

Goldman Sachs says it sees the risk of inflation as “greater than at any other time since the 1970s”, notes Henry Sanderson in the Financial Times. For those still concerned that a global recovery will leave gold behind, precious metals bulls are moving into silver and platinum, which have industrial uses and could stand to gain even if gold lags.

Recommended

Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023
What is inflation and how will it affect you?
Inflation

What is inflation and how will it affect you?

There has been much talk of inflation recently. But what exactly is it and what does it mean for our money?
24 Mar 2023
3 success stories set for long-term growth
Investments

3 success stories set for long-term growth

A professional investor tells us where he’d put his money. This week: Felix Wintle, manager of the VT Tyndall North American Fund, selects three favou…
24 Mar 2023
Share tips of the week – 24 March
Investments

Share tips of the week – 24 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
24 Mar 2023

Most Popular

Bank of England hikes key interest rate to 4.25%
UK Economy

Bank of England hikes key interest rate to 4.25%

The Bank of England raised rates by 0.25% following a surprise jump in inflation.
23 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

The Bank of England raised rates to 4.25%, its 11th consecutive increase. Does the base rate have further to go?
23 Mar 2023