The Times: Is gold still a good investment?

The associated feature
Close up of gold bullion

The Pure Gold Company

04/05/2019

By Mark Atherton

The political and economic turmoil surrounding Brexit should have sent investors rushing for the safe haven of gold: the precious metal has traditionally been a reliable store of value. Yet, although the gold price rose by $61 to $1,317 an ounce the day after the EU referendum in June 2016, and briefly hit $1,362 in July, it has been trading roughly between $1,200 and $1,300 ever since. So why are some people still arguing the case for gold?

Josh Saul, the chief executive of the Pure Gold Company, an investment specialist, says gold has a proven track record of rising while other assets fall. “In every crash over the past few hundred years gold has increased in value as a safe-haven asset class.”

He says the gold price has risen about 400 per cent since 2000, but is still some way below its 2011 peak, so there is scope for it to move higher. He argues that gold is a hedge against inflation because it rises along with prices. It is also easy to sell when you need to, while other assets, such as property, can take a long time. “Banks can go under and investments can be lost, but gold has an intrinsic value.”

He says there is no capital gains tax on any rise in the price of gold coins if you are a UK resident.

Adrian Ash of Bullion Vault, which buys and stores gold for investors, says gold bullion proved its worth in the dotcom crash of 2000-03 and that: “Since 1968, gold has risen in 96 per cent of all the five-year timespans when the FTSE all-share index has shown a loss.”

Gold adds diversification to a portfolio and helps to spread the risk. Ash says: “Our clients aren’t necessarily buying physical gold for growth. It’s more about creating a hedge against the prospect of other assets falling.”

Why shouldn’t you buy gold?

Rachel Winter of Killik & Co, a wealth manager, says: “Between 2012 and 2016 it lost about 40 per cent of its value. That doesn’t sound like a safe haven to me. Others see it as a sort of portfolio ‘hedge’, going up when the stock market goes down, as in the final quarter of 2018. Yet in the financial crisis of 2008 gold fell along with the stock market and rose with it in 2009.”

Patrick Connolly of Chase de Vere, a financial planner, says that, “gold doesn’t produce any income, interest or dividends. Essentially it just sits there.”

He also questions gold’s safe haven status. “The price of gold reached more than $1,800 in 2011, fell to about $1,100 at the beginning of 2016 and is now about $1,300. These sharp fluctuations are nothing new. From its peak in 1980 the price of gold fell 65 per cent in less than two and a half years and it took more than 28 years for the 1980 peak to be reached again and investors to get their money back.”

Connolly says: “There is an argument for investing in gold to provide diversification. However, most investors will have some access to gold and other mining shares through their other investments and we believe they can achieve enough diversification through a portfolio of stock market investments, bonds and property holdings.”

Source: The Times

Close up of gold bullion

“In every crash over the past few hundred years gold has increased in value as a safe-haven asset class.”

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