In times of heightened financial uncertainty, investors have traditionally turned to gold as a hedge against inflation and market unpredictability. Now, with stock markets reaching record highs and bond markets under pressure, focus has once again shifted to gold as a defensive play within wealth portfolios.
The precious metal has been on a winning streak lately. Having dipped below $2,000 per troy ounce in 2024, by early September this year it was trading at around $3,550 per troy ounce, representing an all-time high.
Is there a solid case then for having a significant gold allocation within your portfolio?
Financial adviser and self-styled Money Doctor John Lowe says 10 per cent of your wealth should be in a precious metal – not necessarily gold, as silver and platinum are other options, he notes.
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“Currencies, economies and even countries can fail but gold in particular is the standard and very barterable at all times. While I would not categorise it as the greatest investment, it is safe and extremely tradable and it would certainly rank as a defensive strategy rather than an aggressive market play,” he says.
One of the attractions of gold is that it is a relatively finite resource. Only around 216,000 tonnes of it have ever been mined, an amount that is only increasing by around 3,500 tonnes a year, according to the World Gold Council. There is a widely held belief within the industry that the easily extractable deposits have already been mined.
David Russell, chief executive of GoldCore, says one of the best reasons to invest in gold is that it is a way of taking a portion of your wealth out of the financial system and investing it in a tangible asset that has strong liquidity, as physical gold can be easily traded into cash quickly and efficiently when required. He points to high levels of government debt in the US and other major economies and its effect on the bond markets, as well as a stock market that has reached “nosebleed” levels, as reasons why a significant gold allocation makes increased sense at the moment.
“Gold reacts to two things. It’s a hedge against inflation and it’s a hedge against uncertainty, so there is a strong case to hold some within your portfolio. The space it takes up within your portfolio is down to the individual and their understanding of the financial markets and their desire to decide what level of their wealth they want to take out of those markets.”
The global gold market is built on trust and standardisation so investors should always purchase gold that is produced by London Bullion Market Association (LBMA) approved refineries or issued by sovereign mints. The LBMA maintains the international Good Delivery List, which defines the specifications required for refinery-produced gold bars to be accepted in professional vaults and markets. Similarly, bullion coins issued by government mints such as the American Eagle, Canadian Maple Leaf, or Austrian Philharmonic are universally recognised and highly liquid.
“Recognisability is what underpins liquidity,” notes Russell. “When the time comes to sell, the last thing an investor wants is to be delayed by uncertainty over the origin or authenticity of their gold. Unbranded bars, products from unknown private mints, or secondary-market coins with unclear provenance may require additional verification or may even be rejected altogether by some dealers.
“Gold bars offer better value in terms of cost per ounce, particularly at higher weights, due to the premiums. Larger bars such as 100g, 250g or 1kg typically come with lower premiums over the spot price. Gold coins, on the other hand, offer far greater flexibility, albeit at a greater cost. Coins are produced in standard weights, usually one ounce or smaller, and are widely recognised around the world. If you ever need to sell just part of your gold holding, coins make that process simple. That said, coins generally carry higher premiums due to their production costs, distribution and, in some cases, collectability.”
In terms of practicalities, gold investors have the option to pay for storage of gold with a specialist firm such as GoldCore or can hold it directly themselves, though Russell advises anyone who does hold gold in a home safe to be extra careful about who they reveal this to.
For those who don’t want to buy gold directly, an alternative way to gain exposure to this asset class is to invest in one of the increasingly popular range of gold exchange traded funds (ETFs), which have generated an average return of 40 per cent over the past 12 months.
