How to invest in gold and why now is a good time to do it - Sarah Coles

Gold is also much-loved by investors. And while I don’t often talk about investments, prices have been spiking recently, and attracting plenty of attention, so it’s worth getting to grips with what’s going on, and what it means for you.

I should make it clear up front that it’s not a great idea to pour all your available cash into gold, or sit Smaug-like on a pile of the stuff, but if you’re holding investment funds covering a range of different assets in various parts of the world, gold can definitely be part of the mix. A major attraction is that the price of gold tends to rise when share prices are falling.

Get the best business news, straight to your inbox

When markets in general are struggling, investors may want to put their money in a so-called ‘safe haven’ - something recognised globally as something of value, which is easy to buy and sell quickly and cheaply. Gold falls into this bracket. There’s only a limited amount of gold on earth, so when money flows into gold, it pushes the price up. As a result, when markets more generally are dropping, the price of gold can rise. Of course, as with any other investment, this isn’t a foregone conclusion, but it’s a common trend.

At the moment, the gold price has risen substantially. There are a few things going on here. One major factor is concern about military action in the Middle East. Despite intensified efforts to demand a ceasefire in Gaza, the lack of any clear progress means concerns are running high. At the same time, Iran’s attack on Israel has increased worries about escalation. Heightened global geopolitical risk means investors see real value in holding a ‘safe haven’ asset like gold – pushing the price up.

At the same time, a number of central banks have been buying gold, and have been doing so for the best part of a year and a half. The most recent peak was sparked by a buying spree from China’s central bank.

There’s also the issue of interest rates, and to make life slightly more complicated, what gold investors are interested in is ‘real’ interest rates (which subtract inflation). These fall when central banks cut rates and when inflation is higher. Both of these things are expected in the coming months, which will push real interest rates down. Historically the gold price has tended to move in the opposite direction to real interest rates, which lies behind some of the rises in recent weeks.

Towards the end of 2023, the big question was whether the gold price would stay about the $2,000 level. However, it hasn’t just stayed above this level, it has continued to rally. It has been around the $2,400 dollar level for a while. Traders are coming to terms with the fact that inflation in the US and the UK are both higher than they had expected, but the gold price hasn’t yet shown signs of dropping significantly from here.

It's worth emphasising that there are no guarantees that prices will remain high. We can’t conflate a ‘safe haven’ with a ‘safe’ investment, because there are risks. Prices can be volatile depending on demand from speculators. Gold is also priced in dollars, so if the value of the dollar rises, it will make gold more expensive for overseas buyers, which will mean less demand and falling prices. Plus, gold won’t make you any income. Unlike shares which produce dividends, or bonds which pay a coupon, the only gain you’ll ever make from gold is if the price rises.

If you’re still interested, the next question is likely to be how to get your hands on gold. One of the most straightforward approaches is to buy into an investment fund which holds it. There are plenty of options, including Ninety One Global Gold, which invests in companies around the world involved in gold mining, and also has around 10% of the fund invested direct in precious metals.

If you want a fund that has some exposure to gold, but spreads the risk a bit more, you can consider something like Troy Trojan. Gold typically makes up around 10% of the fund, and the managers will change how much they invest in it depending on the outlook, so there will be times when they hold more.

Finally, you can go for an exchange traded commodity, which is designed to track the price of gold, like iShares Physical Gold ETC. You buy ETCs in the same way as you buy shares, but it’s important to understand how it aims to track the price. Some, like this one, invest in the physical commodity. Others use derivative contracts to artificially match the performance of the commodity, without having to own it. This saves on costs, but it’s a higher-risk approach.

Opting for a fund isn’t as much fun as having your own pile of glinting golden treasure like Scrooge McDuck, and it doesn’t have quite the same cache as driving a gold-plated car or installing golden taps in the downstairs bathroom, but in practical terms, it’s going to save you a small fortune on security and insurance, and you never have to worry about someone driving into your fortune and writing it off.

Inflation

Figures this week revealed that inflation dropped in March, to 3.2%, thanks in no small part to falling food inflation. It’s good news for big milk consumers, jam aficionados and fish fans – all of whom will actually pay less for their favourites than a year earlier. It’s also great news for savers.

There are savings and cash ISA rates which beat inflation in every market – from easy-access to fixed-rate savings deals over seven years. There are still easy-access accounts and shorter-term fixed rates offering more than 5% - so you can beat it by a decent margin.

These deals aren’t going to last forever though. As inflation comes under control, banks will price in more rate cuts, and savings rates will drop. Over the past three months, we’ve already seen savings rates fall across the board, with the largest declines in fixed term accounts - so it’s worth getting hold of a competitive deal while you can.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHeadline Money Expert of the YearHargreaves Lansdown

[email protected]