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Gold rises above $2,000 an ounce for the first time

Written by: Emma Lunn
The stock market might be down, but gold is enjoying a record-breaking rally. Should you invest?

Gold has hit an all-time high against the US dollar and stands at $2,040 (£1,556) at the time of writing.

The rally is driven by fears over the impact of Covid-19 on the global economy, low interest rates and volatile stock market performance.

Uncertain times

Investors and wealth managers have been buying up gold due to concerns over the global economy’s ability to recover from the coronavirus pandemic.

The reason for this is simple – gold is a safe haven asset that is able to maintain, and sometimes increase, its value during volatile periods.  

Giles Coghlan, chief currency analyst at HYCM, said: “To me, 2020 will be known as the year of the gold rush. Its spot price has increased by 32% since the beginning of the year, and finally broken $2,000. This is an astounding performance, and naturally has people questioning just how high the price of gold will go.”

In general, gold has proved to be the place for investors to gain during the past three major recessions. The precious metal increased in value during the 1990/91 recession, the 2001 recession, and the 2007/09 financial crisis.

Is now the right time to buy gold?

Private banks are encouraging their clients to buy gold as a means of hedging against inflation and currency fluctuations.

But simply buying and holding gold for long-term returns might be wrong approach to take. Rather, the precious metal is more suited for short- and medium-term purposes and requires the investor to keep a keen eye on the market to know when it is best to sell.

Coghlan said: “What I recommend using is the Volatility Index (VIX). By analysing future risk and investor behaviour, the VIX provides a 30-day projection of the expected volatility likely to be experienced by the major markets.

“Based on performances in the past, a drop in the VIX should be followed by a rise in gold prices and vice versa. As such, investors considering gold purchases should watch the performance of the VIX.”

Another option is to buy gold exchange traded products (ETPs). Investment platform interactive investor reports that users have flocked to gold ETPs since the beginning of August.

They account for three of the top 10 bestselling ETPs on the platform so far this month, with iShares Physical Gold ETC ranking highest in second position, WisdomTree Physical Gold ETF in fourth and iShares Gold Producers UCITS ETF in 10th place.

Myron Jobson, personal finance campaigner at interactive investor, said: “Gold remains a good portfolio diversifier and one of the easiest and cheapest ways to invest in the asset is through an exchange traded commodity (ETC) that tracks the price of gold.

“We like the iShares Physical Gold ETC. Unlike many commodity funds, this one buys gold bullion instead of gaining exposure to the metal by buying derivatives (financial contracts that are derived from the asset but have no direct value in and of themselves). With low ongoing charges of 0.15%, it is an easy, flexible and cheap way to invest in the asset and on our Super 60 list.”

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