Gold hit a record high in 2023 - could it soar higher this year?

The yellow metal has hit a new all-time high. We look at market expectations for 2024, whether investors should sell and take profits, and how to invest in gold.

gold bullion bar
(Image credit: Getty Images)

Gold hit an all-time high last year as record numbers of investors backed the yellow metal.

The gold price hit a record high, touching around $2,135 on 4 December 2023, thanks to a weakening US dollar and expectations that interest rates will be cut next year.

The Royal Mint said it saw a 7% annual increase in investors purchasing bullion last year as a way to navigate volatile financial markets.

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The price of the precious metal rose around 12% in 2023.

Gold can be a great way to build diversification and protection into an investment portfolio as a hedge against inflation and market volatility, But now it appears that traders are switching investing strategies and focusing on assets like gold to guard against interest rate cuts.

The price of bitcoin is also surging: it has hit a two-year high as of early January, breaking the $45,000 barrier.

Rupert Thompson, chief economist at the wealth manager Kingswood, comments: “The driving force behind all these gains has been the dramatic reappraisal by the market of the interest rate outlook. Whereas back in October, the markets were spooked by the prospect of rates remaining higher for longer, now they are convinced they will be cut significantly next year.”

WILL GOLD CONTINUE TO RALLY? 

According to Reade, the most important financial market drivers of gold will be “the direction of the US dollar and the amount of cuts that traders price into the US interest rate market”.

The dollar is currently trading at around a three-month low, which adds to gold’s attractiveness. 

In terms of interest rates, markets assume rates in the US and Eurozone will fall in the spring and be 1.25 points lower by the end of 2024. 

Victoria Scholar, head of investment at the online platform Interactive Investor, says that “concerns about the shaky global economic backdrop and the Israel-Hamas conflict” are continuing to fuel investor demand for safe-haven assets like gold. 

She adds: “A recent survey from the World Gold Council found that 24% of all central banks plan to up their gold reserves in the next year, which could fuel further upside for gold in 2024.”

Stuart O’Reilly, markets insights analyst at The Royal Mint, said the potential for central bank rate cuts in 2024 is boosting the gold and precious metals market, as the prospect of lower rates boosts demand for non-yielding assets. 

"Traders and investors are increasingly pricing in a Fed rate cut some time in 2024, which could accelerate the price of gold alongside a weakening of the US dollar," he says. 

"The dual impact of this move could turbocharge gold beyond recent market highs, as recent geopolitical and economic uncertainty, alongside strong central bank gold buying, has kept precious metals markets elevated. 2024 is also shaping up to be a record year for elections worldwide, with more people than in any other year having the opportunity to cast a ballot."

SHOULD I SELL AND TAKE PROFITS - OR BUY MORE GOLD? 

This depends on your investment strategy, and whether you believe the economic predictions, especially around interest rates. The gold price could tumble if interest rate cuts do not happen as expected this year. 

Ole Hansen, head of commodity strategy at Saxo Bank, notes that speculators, such as hedge funds, remain the key drivers behind the latest rally in gold. “With five US rate cuts fully priced in for 2024, there is little room for error in the short term, and it raises the risk of disappointment should incoming economic data fail to support the current gold bullish narrative. Speculators are not 'married' to their positions and will adjust if the technical and/or fundamental outlook changes.”

But gold could also surge higher, meaning selling now could see you miss out on further gains.

Hansen says he is bullish on gold for 2024, but cautions that the chance of a straight-line rally is unlikely, and there will continue to be “periods where convictions might be challenged”.

The wider question is whether investing in gold is right for you and your portfolio. Many experts argue that all investment portfolios should contain some gold, as it works as a diversifier against other assets like shares and bonds. 

It is also a useful hedge against economic or political upheaval: when stock markets are crashing, the yellow metal often soars.

Tom Stevenson, investment director, personal investing, at Fidelity International, points out that last year, the gold price ended roughly where it started, after some big ups and downs, and helped to offset the declines for both shares and bonds in 2022.

He comments: “Another reason to hold gold is its stability over long periods. Prized as a store of value since ancient times, gold has tended to maintain its real inflation-adjusted value over time even if it can be extremely volatile in the short run.”

Stevenson adds that one of the reasons gold holds its value is its scarcity: “Supply has barely increased in recent years, in part because the easy gold has already been mined; in part, too, because the environmental cost of producing what remains is rising."

HOW IS SILVER PERFORMING?

Silver is correlated with gold but because it has so many industrial uses, its price is also more closely linked to economic growth and consumer demand.

Like gold, it has risen strongly, although Stevenson notes that over the past year, "it has been quite volatile and broadly moved sideways". 

Its current price of around $23 an ounce is well below the peak of around $46 that it reached in 2011.

Silver acts as a diversifier in an investment portfolio as it behaves differently from other asset classes like equities and bonds. Stevenson comments: "For example, over the past 20 years, the silver price has broadly matched the performance of the S&P500 index but has arrived at the same place via a very different route. It outperformed significantly around the financial crisis and has underperformed since." 

He adds: "Over that period, however, an investor could have achieved better returns, and with less volatility, by investing in gold rather than silver."

Looking ahead, silver could perform well as interest rates fall. Other considerations include supply constraints: silver mining tends to not keep up with demand, and supply in 2023 is forecast to be lower.

HOW TO INVEST IN GOLD 

There are three main ways to get exposure to gold. The first one is via investing in the metal itself through a financial contract, such as an exchange traded product. See our article on the five best gold ETFs.

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 the shares, or buying a gold-themed fund or investment trust.

Lastly, you could buy physical gold bars or gold coins.

In terms of how much gold to hold in a portfolio, Stevenson recommends that around 5-10% is more than enough and 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.

Ruth Emery

Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.