Gold gets a thumbs-down

By the start of October, gold equities had risen 132% in sterling terms in 2016¹. So our monthly poll asked – would you still buy? Half of our respondents said no, they would not buy gold mining shares at this point.

So has gold had its run for now? We’ve had a series of events, such as the Brexit vote, that have pushed up volatility this year and encouraged investors to seek out safe haven assets. Hence the precious metal’s price rise – the commodity itself was up 40% for the year-to-date at the start of October, in sterling terms².

But can gold keep shining?

Yet there may be more fuel in the tank. And it’s important to remember that gold remains a valuable portfolio diversifier at any stage in the cycle.

The US election result could cause further market volatility around the world. Plus as the currency value deteriorates here in Britain, inflation is rising for the first time in a long time. If inflation starts to climb too quickly, gold could be once again in demand. This is because gold can’t be re-produced and its supply is finite, unlike cash, which becomes less valuable in environments of very high inflation.

One other thing to keep in mind is that while the price of the precious metal has shot up this year, it is still only at US$1,286 – which is a long way below its 2011 highs of US$1,890³.

Something to think about for the 23% of poll respondents who said they were undecided about whether or not to buy!

Read more: Gold – to buy or not to buy?

¹Source: FE Analytics, MSCI ACWI Select Gold Miners IMI, total returns in GBP, 01/01/2016–01/10/2016
²Source: FE Analytics, Bloomberg Gold Sub, total returns in GBP, 01/01/2016–01/10/2016
³Source: goldprice.org/spot-gold.html

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.