Nervous investors flock to gold

Uncertainty is causing investors to up their allocations to the precious metal.

Uncertainty around Brexit and trade wars has caused a spike in gold buying. Figures from BullionVault show trading in the yellow metal saw a fivefold increase last week (9-13 July).

Users of its website have been net buying an average of 12 kilos of the precious metal per day – some 421 per cent higher than the daily average over the past 12 months.

Private investors using its services now own a record 38.8 tonnes of gold, worth £1.2 billion, it reports.

Adrian Ash, director of research, says: ‘Brexit, the global trade war and president Trump are playing a big part in driving this jump in private investor gold demand. But the plainest and most direct cause for the surge looks to be the dip in prices.’

The gold price is currently $1,238.1 per ounce, and has increased just 0.4 per cent over the past year, despite growing geopolitical tensions globally.

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Typically, investors flock to the yellow metal at times of uncertainty as it is seen as a safe, physical store of value. After the financial crisis, for example, rampant demand brought it within touching distance of $2,000 an ounce.

But investing directly into commodities such as gold can be volatile, and investors are also faced with the question of how to store their bullion.

For many, using a fund or exchange-traded fund can be a cheaper, easier option than holding physical gold. The iShares Physical Gold ETC, for example, tracks the price of the yellow metal for a low annual charge of 0.25 per cent. It has returned 27.2 per cent over the past three years but is down 0.2 per cent over the past 12 months.

Investors might also consider a fund which backs the shares of companies involved in the gold industry. BlackRock Gold & General invests in firms including Randgold Resources, Newcrest Mining and Agnico Eagle Mines. It is up 44.2 per cent over the past three years but is down 9.1 per cent over the past 12 months.

Ash adds: ‘The problems of Brexit, global trade and military security don’t look likely to end any time soon. But patience is more likely to reward investors buying gold for defence, rather than buying because of a short-term price dip.’

 

 

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