This paper examines recent trends in gold.
- Gold is a unique investment asset. It does not generate cashflow yet has delivered real returns over very long timeframes. It is perceived as a safe haven but can also experience significant falls in value.
- It can help offset rising inflation over the long-term, yet its short-term relationship with inflation is mixed. Gold’s future expected return relies on investors’ continued perception of gold as a store of value.
- Gold price volatility is high, similar to equities, and heightened during periods of rapidly rising inflation.
- Gold’s performance has been largely uncorrelated with major asset classes and historically provided some downside protection during equity market drawdowns.
- The lack of an underlying fundamental value for gold makes it difficult to provide a recommendation on the current investment case but we recognise that historical price movements have been positive for portfolios with an allocation.
- Heightened geopolitical tension, the desire of greater diversification, expectations of inflation pressures and growing budget deficits, could see the gold price continue trending higher.
- There are potential diversification benefits from investing in gold, but caution is warranted given current very elevated price levels.
