Gold price hits record high: What’s behind the latest surge and how do you invest in it?

The price of gold reached a record high as hopes mount for a US rate cut this summer, following weaker-than-expected economic data published last week.

The price of the precious metal surged to $2,114 (£1,664) an ounce in the spot market, after steady increases over the past few weeks.

It follows the publication of US economic data last week which sparked hope for the Federal Reserve’s first rate cut of the year in June.

All that glitters: The price of gold is surging on hopes of interest rate cuts this summer

Continued geopolitical and economic tensions are also pushing investors to move into the safe haven asset.

We look at what’s behind the recent surge in the price of gold and how investors can get exposure to it.

Why is the price of gold surging?

On Monday, gold reached a new record high of $2,110 after softer-than-expected US economic data pushed the dollar and Treasury yields down last week.

The precious metal tends to underperform in high interest rate environments because it doesn’t pay investors an income. 

Instead investors tend to opt for bonds and cash which usually offer a better yield.

Jason Hollands, managing director of Bestinvest said: ‘As a zero-yielding asset class there is an opportunity cost to hold bullion when yields are climbing on US Treasuries or UK gilts, but with yields on government bonds having peaked and likely to retreat further as rate cuts approach, this headwind for gold has abated.’

Investment bank TD Securities said investors were ‘in two minds’ about gold at the moment. 

Economic data from the US and elevated inflation readings have delayed the Federal Reserve’s dovish pivot, with many analysts now predicting it could delay cutting interest rates.

A harder landing for the US could spark a flight to safe haven assets, including gold.

The price of gold over the past year. Source: BullionVault

However, expectations that the economic backdrop will start to moderate in time mean that many money managers are building long positions in gold ahead of any rate cuts.

Beyond US economic data, the biggest driver of the recent gold surge seems to be its role as a safe haven asset during political and economic uncertainty.

Gold prices have held above the $2,000 per ounce level since December amid geopolitical tensions, exacerbated by ongoing risk in Ukraine and the Middle East.

Axel Rudolph, senior market analyst at IG says gold had ticked higher ‘on flight-to-safety flows amid a speech by Putin in which he mentioned Russian nuclear weapons being capable of hitting Western targets and as China, the world’s second largest global importer, keeps buying the precious metal according to a Reuters story.’

Hollands adds: ‘To add to this, 2024 sees a huge number of countries going to the polls, including the US Presidential elections in November, which adds a degree of uncertainty into the outlook for fiscal policy.

The price of gold over 20 years. Source: BullionVault

Will gold continue to rise?

While gold might be considered a safe asset during political and economic uncertainty, sustained interest rates could halt the price climbing further.

ING commodities strategist Ewa Manthey says: ‘We believe the Federal Reserve’s wait-and-see approach will keep the rally in check. We expect prices to average $2,025/ounce over the first quarter.’

However the bank anticipates gold will trade higher across the rest of the years.

‘We forecast prices to average $2,150/ounce in the fourth quarter and $2,081/ounce in 2024 on the assumption that the Fed starts cutting rates in the second quarter of the year and the dollar weakens.

‘Downside risks revolve around US monetary policy and dollar strength. The higher-for-longer narrative could see a stronger dollar for longer and weaker gold prices.’

Kieran Tompkins of Capital Economics predicts that ‘the gold price will rise in each of the next couple of years, driven by the Fed cutting rates a little quicker than is priced into markets, falling US Treasury yields and a softening US dollar.’

How to invest in gold

There are a few ways you can get exposure to gold.

You can invest in gold through Exchange Traded Commodities (ETCs), which track the gold price and are no different from holding a passive investment in a stock market index.

ETCs are listed on the stock exchange that provide investors with exposure to the gold price, backed up by physical holdings in bars of gold held in secure vaults.

Hollands’ top pick is the Invesco Physical Gold ETC, which has an ongoing charge of 0.12 per cent, and is ecured by gold bullion held in JP Morgan Chase Bank’s London vaults.

Bestinvest also has an approximate 5 per cent allocation to gold in most of its ready-made managed portfolios. 

You can also gain exposure to gold through multi-asset funds which hold a certain portion of their portfolio in gold-related investments.

Finally, you can invest in gold through the purchase of physical bars or coins, which can be stored at home or be held in a secure vault, like the Royal Mint, for a fee.

This post first appeared on Dailymail.co.uk