it time to buy back into gold? As stock markets wobble, investors
are taking a second look at the embattled safe haven by Eleanor Lawrie
For Thisismoney.co.uk | Published: 06:15 EST, 26 January 2016
| Updated: 10:07 EST, 26 January 2016
- Gold hit a five-year
price low in November last year, meaning it could be an
opportunity to buy in
- Ongoing volatility in financial markets could increase
the allure of gold, which tends not to rise and fall with
The last five years have
not been kind to gold, with the price falling steadily since
the middle of 2011
But the traditional safe haven commodity's
fortunes could be looking rosier as investors search for
shelter from the current volatility in financial markets.
The FTSE All-World index had its worst start
to the year in two decades, while the FTSE 100 briefly dipped
in to a bear market last week, dropping more than 20 per
cent below its all-time high last spring.
By comparison, since the start of 2016 the price of gold
has risen by 5 per cent, although it is still subdued compared
to its all-time high.
Gold is currently trading at $1,114 - down
42 per cent in US dollar terms on the $1,921 high in September
Maike Currie, investment director at Fidelity
International, says the headwinds surrounding gold are short-lived:
'Market turbulence and geopolitical uncertainties
are bound to drive risk-shy investors to gold given its
status as safe haven asset. Investors buy the yellow metal
during times of market panic because it seen as a store
'In recent years gold has been hurt by low
inflation and the strength of the dollar but these short-term
headwinds could dissipate and the low gold price should
She suggests the growing change in sentiment
towards gold could gather momentum.
'As investors concerned about market volatility
move towards it, they bid up its price, justifying the initial
rush and encouraging others to do the same.
'The biggest risk to gold overall is an
increase in real interest rates. If this happens the opportunity
cost of holding gold will encourage investors to sell the
metal. But Mark Carney has made it very clear that rates
will stay lower for longer.'
In theory, the gold price should have taken
a hit from the US Federal Reserve's decision to raise interest
rates last month, as a stronger dollar weakens the case
for holding the asset class - and as gold in priced in US
dollars it makes it more expensive.
But instead the price has started to tentatively
rise. One reason is market volatility, crude oil recently
hit a 13 year price low, while concerns about a potential
devaluation in the Chinese yuan also weigh heavily on investors'
Adrian Ash, head of research at BullionVault,
suggests holding part of your portfolio in gold could be
a good insurance policy if markets do continue to fall.
'Gold tends to do well when other things
don't, and vice versa, which is why the price has fallen
by 40 per cent since 2011.
'For the long term it's useful if you think
things will go badly wrong. There is a lot of anxiety and
trouble out there today and if you are anxious about the
outlook for equities, and particularly the pound, in terms
of a sterling hedge it's worth looking at gold.'
'Everybody thinks gold is going to become
a consensus story but the fact is it is still out of favour
in terms of being a consumer play.
'Gold is a form of insurance and you obviously
want to buy when prices are low. Gold does cost you - if
you put 10 per cent in gold and everything else does well,
then you won't do as well - but that's the price of having
'Plus, you want to buy insurance when it's
cheap, and this is one of the cheapest times you can buy
But Stephen Jones, chief investment officer
at Kames, argues that despite the tone of market uncertainty,
the appeal of gold remains limited .
'The price of gold has reacted only modestly
to the upheavals in markets seen in the short time since
New Year. You can argue it has been something of a hedge
against volatility, but the moves have been only modest
and not enough to begin to offset price moves in other assets.
Looking at the wider context, he doesn't
think it's a good time to move in to the asset class.
'Longer term you can't ignore the fact that
the gold price has been falling consistently for the last
three years. Compared to this time last year, gold is $200
per ounce lower in price.
'We don't see this longer term trend coming
to an end just yet. First and foremost gold is a hedge against
inflation, and the outlook for inflation remains very subdued.
Recent data from the UK, Europe and the US reports little
or no movement in prices over the past year, and the outlook
is for more of the same.
'In this environment large scale price appreciation
for gold seems remote and we continue to avoid the commodity
And Hector McNeil, co-CEO of ETF specialist
Wisdom Tree Europe, goes even further, saying he doesn't
think gold would offer even limited protection from a market
'We are in bear market territory for equity
markets and investors think of gold as a safe haven so it
may get some interest. But gold is not a safe haven. Gold
has done nothing but fall over the past few years, despite
numerous sell-offs for markets. If it was a true safe haven
the price would have risen during periods of stress.
'For example, during the 2013 debt-ceiling
crisis in the US, when the world's largest economy was on
the brink of defaulting, treasury yields spiked. Despite
growing fears about the impact of a default, the price of
gold barely moved, and indeed if you look at it over history
it has never acted as a safe haven asset.'
He notes that the growth of exchange-traded
commodities gave investors far better access to the asset
This, combined with the commodity's increasing
popularity in China, helped cause a decade-long rally. But
those themes have already played themselves out.
He says: 'We cannot see where the spark
will come from for gold, and most allocations to the precious
metal within portfolios are fairly static, so we do not
expect it to rally.'
What is the best way to invest in
If you believe the yellow metal is about
to see a turnaround in its fortunes, or that it could be
a useful hedge if the wider economic situation continues
to deteriorate, there are several ways to get involved.
One way is through holding gold bullion,
or physical gold.
The advantage of holding physical gold is
that it gives you direct control over your investment. The
disadvantage is that it comes with storage, transport and
insurance costs. For these reasons, physical bullion has
traditionally been dominated by institutional investors
or central banks who buy in very large amounts.
Smaller investors who want to buy physical
need to contact a dealer, who may also be able to help store
it for them. They can buy either buy gold in bars, or coins.
Over the past decade, it has got easier
and cheaper to buy and store physical gold. Companies such
as ATS Bullion, Chards, Baird & Co, BullionVault and
GoldMadeSimple allow investors to buy gold in varying amounts
and different forms online and can arrange storage.
Exchange traded fund providers pool investors
cash together and offer direct exposure to a fund that tracks
the gold price.
Investors should check costs and whether
the funds either track gold through holding physical bullion,
or are synthetic and replicate it with derivatives - these
carry extra risk in that the counter-party in the derivatives
trade may find itself unable to fulfil its commitments.
There are also diversified commodity indexes
which hold a proportion in gold. These 'broad basket' ETCs
track an index including all the major commodities across
energy, metals and agriculture.
Another advantage of investing through an
ETC is they are a more liquid form of investment than a
direct ownership of physical gold because they are traded
daily on stock exchanges like shares - allowing investors
to easily buy or sell.
Alternatively, a more diversified way to
access gold is through an actively managed fund such as
the BlackRock Gold & General, or Investec Global Gold,
which invest in gold mining companies rather than gold bullion
Both saw their share price dip by 25 per
cent last year, but are two of the funds regularly tipped
by those who believe the gold price will rally.