The price of gold has risen more than 30% this year, and some experts believe the rise is far from over. What is it, and how attractive is gold as an investment?
At the start of the year, an ounce of gold, or around 31 grams, cost $2,000, compared to $2,700 today – converted into euros, a kilo of gold is currently worth nearly 80,000 euros. It’s a record. Some experts even predict that the price of gold will reach 3,000 dollars by the end of the yearwhich would represent an increase of 50% in one year. A return that is likely to appeal to many investors.
Gold has fascinated people for centuries. It has long served as collateral for currency in circulation. According to the Bretton Woods agreements, concluded in 1944 between 44 countries, the dollar could be exchanged for a fixed quantity of gold: 35 dollars per ounce. When the Bretton Woods system was abolished in 1971, the price of gold began to rise. At the beginning of the 1980s, an ounce already cost 700 dollars, a consequence of the oil crisis, high inflation and international conflicts. Subsequently, the price fell again, even reaching around 280 dollars and 2000.
A safe haven
Between 2006 and 2012, the price started to rise again, going from 500 to 1,600 dollars per ounce. There banking crisis of 2008, and especially the eurozone crisis that followed, fueled this outbreak. From 2012 to 2018, the price of gold then stabilized around 1,200 dollars, but from 2019, with the Covid crisis, a new rise towards 1,800 dollars began. And since the start of this year, the increase has accelerated. Concern over a possible escalation of the conflict in the Middle East plays an important role.
Investors view gold as a safe haven to which they turn in times of impending crisis. This is why it is sometimes considered that it acts as a “sentinel”: a rising gold price would be a harbinger of major difficulties. But the price of gold also depends on other factors. Central bank purchases, for example, play a crucial role. Between 1980 and 2000, many central banks reduced their gold reserves; the National Bank of Belgium, among others, has sold a lot of gold in recent decades. But since 2015, some of them have resumed their purchases of gold, notably those from China, Turkey and India, which are particularly active.
Despite this spectacular rise, not everyone considers gold a good investment.
The sharp rise in the price of gold in recent months has surprised investors: what other investment can offer such a return? But despite this spectacular rise, not everyone considers gold a great investment. Critics point out that gold has no economic or intrinsic value. It is not an industrial raw material; it remains above all a precious metal whose price depends mainly on supply and demand. In other words, the price of gold is… what we are willing to pay.
Gold is, moreover, a “dead” investment: it does not earn interest or dividends, unlike a savings account or stocks. In addition, gold bars or coins must be kept in a safe place, for example in a safe at the bank, which incurs costs. Finally, gold is still quoted in dollars, which requires take into account the dollar/euro exchange ratewhich also influences performance.
Gold is a “dead” investment: it does not earn interest or dividends
There are several ways to invest in gold. You can buy “physical” metal, such as the famous Krugerrand (a coin that weighs exactly one ounce), or even bars of various weights. In the past, they could be obtained at almost any bank branch; From now on, you must contact a specialist dealerwhich obviously charges a commission.
It is also possible to invest indirectly in gold. This can be done by purchasing a tracker, the price of which closely follows the price of gold. Well-known trackers include iShares Physical Gold and Invesco Physical Gold, listed on the London and Frankfurt stock exchanges, or WisdomTree Physical Gold, listed in Amsterdam. Trackers apply (low) management fees.
Another option is toinvest in a gold mine. When the price per ounce is high, the value of a mining share increases considerably, because the costs of extraction do not increase in the same proportions. The world’s largest gold mining company, Newmont Mining, is publicly traded, as is another well-known company, Barrick Gold. Investing in a mine is riskier than buying a bar, because bankruptcy is never excluded. You can spread the risk by purchasing a tracker that invests in several gold mines, such as VanEck Junior Gold Miners, listed on the Frankfurt and London stock exchanges.
A decline in the price of gold, over a more or less long period, is possible.
Keeping some gold in an investment portfolio
Does it still make sense to invest in gold today? Some predict the price of gold will reach $3,000 per ounce, but after a dramatic rise, the question still remains know if the biggest increase has not already passed. After the peak in 1980, the price of gold remained below this level for more than 20 years. Following the 2012 record, it took eight years for this price to be reached again. A decline in the price of gold, over a more or less long period, is therefore possible.
Many advisors recommend always keeping some gold in an investment portfolio, alongside stocks and bonds. The logic is this: the price of gold rises during turbulent times, so that if stocks and/or bonds fall due to a crisis, it can partially offset that loss. This is why it is sometimes recommended to invest between 1 and 10% of the total value of the portfolio in gold. So, for an investment of 10,000 euros, this principle would suggest placing between 100 and 1,000 euros in gold.
But is it still a good time to buy gold? To paraphrase Warren Buffett: investing in gold is really investing in fear and believing that it will continue to increase.
