Gold is poised to glitter again

It has been a bad year so far for gold investors, but gold’s traditional role as an inflation hedge will serve it well.

It has been a dispiriting year so far for gold investors, but the yellow metal could be poised to glitter again. Gold prices started the year around $1,900/oz but fell back as investors piled into “risk-on” assets in anticipation of economic reopening. This year’s cryptocurrency mania has also stolen some of gold’s thunder as a hedge against currency debasement by central banks. By early March, the price had tumbled to $1,700/oz. June was the metal’s worst month since 2016. Yet gold has perked up to trade around $1,820/oz this week. It has risen by 2.5% since the start of July in dollar terms.  

Why? Because of gold’s traditional role as an inflation hedge. Inflation surged to 5.4% last month in the US and also went over the central bank’s target in the UK. Unlike the dollar, gold is “a currency that cannot be manipulated by central banks”, Catherine Doyle of Newton Investment Management told Sam Benstead in The Daily Telegraph. Mikhail Sprogis of Goldman Sachs thinks that gold “should be worth at least $2,000 today” given the inflationary outlook. The bank is advising clients to “snap up the precious metal”, says Benstead. 

Gold hit an all-time high of $2,063/oz last year, but it has since lost 10%. Long term buyers won’t be too put out though. Investors who bought five years ago are still sitting on a 37% gain; 20 years ago, gold was trading below $300/oz. 

Recommended

How to cut your energy bill this winter
Personal finance

How to cut your energy bill this winter

Gas and electricity prices have risen by more than 250% so far this year. And they’re likely to go higher still Saloni Sardana looks at what can you …
24 Sep 2021
Cryptocurrency roundup: China’s crackdown intensifies
Bitcoin & crypto

Cryptocurrency roundup: China’s crackdown intensifies

Most major cryptocurrencies suffered falls this week as China cracked down even harder, while the Evergrande crisis rattled global markets, including …
24 Sep 2021
China Evergrande just missed a bond payment. Does it matter?
China stockmarkets

China Evergrande just missed a bond payment. Does it matter?

Troubled Chinese property giant Evergrande has just missed making an interest payment to some of its bondholders. That's not a surprise, says John Ste…
24 Sep 2021
Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021