Gold is glittering: will the rally continue and should investors buy?

The gold price is shining and private investors are turning bullish on the yellow metal, so we weigh up the pros and cons.

The gold price is rising and investors are buying, with figures released by The Royal Mint reporting a 40% rise in new customers looking to invest in precious metals in July, compared to the same period last year.

This is part of a wider trend, with other precious-metal firms citing an increase in demand for gold. On that front, BullionVault, an online exchange, reckons the rally is here to stay. A survey of its customers last month found that almost two-thirds (65%) expect the price of gold to rise by up to 20% before the end of 2019.

So far this year, the precious metal has risen from $1,281 to $1,438 at the end of July, an increase of 12.3%.

Furthermore, bullion dealer Sharps Pixley notes its ratio of gold sellers to gold buyers has fallen sharply. Ross Norman, chief executive at Sharps Pixley, says: “Confidence in the gold bull run is rising and we are in the early stages of seeing gold going price-inelastic… that is to say the higher [the price] rises, the greater the buying.”

Norman suggests we could be seeing “the very earliest stages of a bull run and potentially a bubble in the fullness of time. In short, this bull run has legs to run.”

He adds: “Sceptics will point out to the issue of self-interest - we are a leading seller of physical gold bars and coins in London - but note that we have never been perma-bulls or indeed gold bugs … we just say it as we see it.”

Why gold is glittering

At the start of 2019, Money Observer outlined why owning a small part of a portfolio in gold, of around 5%, would make perfect sense.

The reasons we outlined back then still stand, as there are more reasons for investors to feel more bearish than bullish at this juncture.

The prolonged US/China trade war and ongoing Brexit saga are two uncertainties that continue to give investors cause for concern.

Moreover, following a decade-long bull market it is only natural for investors to look down, rather than up. Therefore, the defensive characteristics of gold should in theory stand investors in good stead during periods when volatility picks up.

According to Nicola Howell, executive director at The Royal Mint, heightened investor interest for precious metals is being driven by “continued market turbulence, ongoing political tensions around the world, and Brexit uncertainty and confusion in the UK, as investors look to safeguard their investments”.

Another boon for the gold price of late, according to Nitesh Shah, director of research at WisdomTree, the ETF provider, has been the weak US dollar. This has been in response to a change of tack from the US central bank, the Federal Reserve, which cut interest rates for the first time in 11 years at the end of July.

At the start of the year, the Federal Reserve signalled its intention to raise interest rates a couple of times in 2019, but amid fears that the US economy is not on as firm a footing as it previously was rates have instead been cut. As a result of all this, the US dollar has weakened.  

The value of the dollar typically has an inverse relationship with the gold price. When the dollar rises, gold as a dollar-denominated commodity becomes more expensive for international investors to buy, dampening demand. 

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