Gold is booming – but how safe is it for investors, really?

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Emma Siebenborn tells me that the amount of gold you have is about £250, 000 fair of. She shows me a plastic tub full of worn-out bracelets, charm bracelets, earrings, and orphaned pearls.

Emma is the strategies director of Hatton Garden Metals, a family-run silver shop in London’s Hatton Garden jewels area, and this unprepossessing bucket of bric-a-brac is a small example of what they buy over the counter each time. It is actually metal piece that will be melted down and recycled.

Also on the table, somewhat more beautifully presented in a suede-lined box, is a selection of silver coins and cafes. The largest club measures about the width and length of a cellular telephone. It weighs a big 1kg, and it’s worthwhile about £80, 000.

The cash come in the shape of biscuit-sized Britannias, which each contain one iota of 24 carat silver, as well as smaller Monarchs. These are all available to buy- and the subsequent surge in golden rates has led to a surge in demand.

Zoe Lyons, the managing director and Emma’s girl, has never seen anything like it; she frequently spots would-be dealers waiting in the street. ” There’s excitement and sensation in the market but also awkwardness and trepidation”, she tells me.

There is concern about the direction the market will take next, and when you experience those feelings, it eventually leads to some pretty significant deals.

At MNR jewellery a couple of streets apart, a seller agrees:” Need for silver has increased, definitely”, he says.

Platinum is undoubtedly on a roll. Its price has increased by more than 40 % over the past year. It increased above$ 3,500 ( £2, 630 ) per troy ounce ( a measurement for precious metals ) in late April. This marked an all-time history, even allowing for prices, exceeding the previous peak reached in January 1980. In modern dollars, the money value was$ 850, or$ 3 493.

Academics have attributed this to a variety of elements. The Trump administration’s sudden changes in US trade policy, among them, have had a major impact on the industry. Silver, by contrast, is seen by many as a good investment. Its beauty has only grown more appealing as a result of worries about political uncertainty. Many owners have come to understand the comparative security offered by a resource when dismissed by the businessman Warren Buffett as “lifeless” and “neither of much use nor procreative”.

According to Louise Street, mature markets scientist at the World Gold Council, a trade body funded by the mining sector, “it’s the kind of problems that we view as a bit of a great surprise for golden.”

” It’s the focus on potential inflationary pressures. You’ve seen the IMF]International Monetary Fund ] downgrade economic projections very late, and recessionary threats are rising.

But what goes up can even come along. Although platinum is known to be a secure property, it is not impervious to price swings. In truth, in the past, big storms in the price have been followed by significant fall.

What is the chance that this could occur again, leaving some of today’s eager investors suffering significant loss?

Since ancient times, silver has been regarded as a store of intrinsic value, helped by its comparative rarity. The world provide is limited. The World Gold Council estimates that only about 216, 265 kilos have ever been mined ( the total is now increasing by about 3, 500 tonnes per month ). This means that it is widely perceived as a” safe have n” asset that will retain its value.

However, it has both advantages and drawbacks as an expense.

Unlike stock, it will never give a dividend. It won’t offer a stable, predictable income, unlike ties, and its applications in industry are comparatively limited.

The issue is that it is a natural solution that can be obtained outside of the banking system, which is a draw. It is also used as an insurance policy against prices: while economies tend to lose value over time, golden does no.

Russ Mould, purchase director at trader AJ Bell, says “gold doesn’t get printed by main businesses, and it can’t be conjured out of thin air.” ” In recent times, a great plan response from authorities when there’s been a crisis has been: slice interest rates, increase income source, quantitative easing, printing money. From that, and as a result, as a store of value, silver is seen as a shelter.

There has just been a substantial rise in demand for silver from so-called Exchange Traded Funds, purchase vehicles that hold an asset such as silver themselves, while investors may buy and sell shares in the account.

They are well-known with large institutional investors, and their actions have pushed the price higher.

When gold hit its previous record in January 1980, the Soviet Union had just invaded Afghanistan. Oil prices were rising, causing inflation in developed nations, and investors were attempting to safeguard their wealth. The price also rose sharply in the aftermath of the global financial crisis, leading to another peak in 2011.

The way markets have responded to the confusion triggered by the Trump administration appears to be a significant contributor to the recent increases.

The most recent uptick was caused by US President Donald Trump’s online attack on Federal Reserve Chairman Jerome Powell. Calling for immediate interest rate cuts, he described Mr Powell as a “major loser” for failing to reduce the cost of borrowing quickly enough.

Some people saw his comments as an attack on the US central bank’s independence. Share markets fell, as did the value of the dollar compared to other major currencies– and gold hit its most recent record.

However, the recent strength of gold is not entirely attributable to the Trump factor.

Since late 2022, the price has been on a steep upward trend, at least in part due to central banks, according to Louise Street. “]They ] have been net buyers of gold, to add to their official reserves, for the past 15 years”, she explains. However, we observed a real acceleration over the past three years.

Central banks have collectively bought more than 1, 000 tonnes of gold each year since 2022, up from an average of 481 tonnes a year between 2010 and 2021. Last year, Poland, Turkey, India, Azerbaijan, and China were just a few of the top buyers.

Analysts say central banks may themselves have been trying to build up buffers at a time of growing economic and geopolitical uncertainty.

In 2022, the reserves of the Russian Central Bank frozen in response to the invasion of Ukraine, and reserve managers of global central banks around the world realized,” Maybe my reserves aren’t safe either, what if I buy gold and hold it in my own vaults?” asks Daan Struyven, co-head of global commodities research at Goldman Sachs.

” And so we have seen this big structural fivefold increase in demand for gold from central banks”.

In addition, Simon French, chief economist and head of research at the investment firm Panmure Liberum, believes that central banks ‘ independence from dollar-based banking systems has been a significant driver. I would look at China, but also Russia, their central bank is a big buyer of gold, also Turkey.

He claims that” a number of nations fear the use of the dollar and, potentially, the Euro system.”

” If they are not aligning themselves with the US or the Western view, on diplomatic grounds, on military grounds … having an asset in their central bank that is not controlled by their military or political foes is quite an attractive feature”.

FOMO, or fear of missing out, may be another factor that may be contributing to the gold market’s upwards. With new all-time records being set, it has filtered through into everyday conversation in some quarters.

This is, in Zoe Lyons ‘ opinion, true in Hatton Garden. ” ]People ] want a piece of the golden pie”, she says,” and they’re willing to do that through buying physical gold”.

The big question, though, is what happens next. Some experts predict that the upward trend will continue as a result of central bank buying, inflationary pressures, and unpredictable US policy. Indeed Goldman Sachs has forecast gold will reach$ 3, 700/oz ( £2, 800/oz ) by the end of 2025 and$ 4, 000 ( £3, 000 ) by mid 2026.

However, it adds that, in the event of a US recession or an escalation of the trade war, it might even reach$ 4,500 ( £3,400 ) later this year.

” The US stock market is 200 times bigger than the gold market, so even a small move out of the big stock market or the big bond market would mean a big percent increase in the much smaller gold market”, explains Daan Struyven.

In other words, a lot of turbulence in major investment markets wouldn’t be enough to propel gold upward.

Yet others are concerned that the price of gold has risen so far, so fast that a market bubble is forming – and bubbles can burst.

Back in 1980, for example, the dramatic spike in the gold price was followed by an equally remarkable correction, dropping from$ 850 ( £640 ) in late January to just$ 485 ( £365 ) in early April. It was only$ 297 ( £224 ) in mid-June the following year, a 65 % decrease from its peak.

The peak in 2011, meanwhile, was followed by a sharp dip, then a period of volatility. It had dropped by 18 % within four months. After plateauing for a while, it continued to fall, reaching a low point in mid-2013 that was 35 % down from its highest.

Is it still possible that something similar will occur now?

Some analysts do believe that prices will ultimately drop significantly. Jon Mills, an industry expert at Morningstar, made headlines in March when he suggested the cost of an ounce of gold could drop to just$ 1, 820 over the next few years.

His theory was that the supply would increase as mining companies increased their production and more recycled gold entered the market. At the same time central banks would ease off their buying spree, while other short-term pressures stimulating demand would subside, bringing prices down.

Since then, those forecasts have been slightly revised, largely due to rising mining costs.

Daan Stryven disagrees. He believes there could be a short-term dip, but prices will generally continue to rise. I believe hedge funds would be willing to take some of their money out of gold and invest it in risky assets, like the stock market, if there were to be a peace deal with Ukraine or a de-escalation of trade.

” So you could see temporary dips. However, we have a lot of faith that in this ambiguous geopolitical setup, where central banks want safer reserve holdings, they will continue to encourage demand over the medium term.

Russ Mould believes there will, at the very least, be a lull in the upwards trend”. It would be reasonable to anticipate that it will take a breather at some point given its stunning run, he says.

But he believes that if there is a sharp economic slowdown and interest rates are slashed, the gold price could go higher in the long run.

One problem for investors is working out whether the recent record price for gold was simply a staging point in a continued upward climb – to more than$ 4, 000 for example– or the peak.

According to Simon French of Panmure Liberum, the peak may be very close, and those who start trading now in the hopes of making a lot of money are likely to be disappointed. Others have warned that those recently lured into buying gold by hype and headlines could lose out if the market goes into reverse.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, has said that” short-term speculating can backfire, even though there will be temptation hang on to the coat-tails of the record run upwards.”

” Investors considering investing in gold should do so as part of a diversified portfolio – they shouldn’t put all their eggs in a golden basket.”

Getty Images is the source of the image’s top photo.

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