Since central banks cannot (directly) control gold, print gold, or affect the (non-existent) interest rate on gold, investors are increasingly looking to the asset as a partial substitute for government bonds and fiat currency exposure.
To be clear, this is extremely unlikely to be a total replacement – after all, gold does not yield, and it can certainly be volatile, as investors in the 1980s and 2010s saw when the gold price fell 40 per cent to 50 per cent.
Nonetheless, investors are recognising the diversification benefits and the potential as a geopolitical hedge. As Warren Buffet famously said, “gold is a way of going long on fear”, and there are always lots of things for investors to worry about.
Where does gold go from here? Who knows. All we really have to go on are price movements and inferred investor sentiment – hardly the basis for a robust analysis.
On the price, while gold is still below inflation-adjusted highs, the current price is not far off, and having gained around 30 per cent over the past 12 months – comfortably outpacing the AI-led returns in global equities – buyers’ enthusiasm might dip in the short term.
Indeed, according to the World Gold Council, investment demand was dipping in Q2, with jewellery demand, often acting as an informal investment, sharply lower. Conversely, if investors were happy to buy the yield-free asset when base rates were above 5 per cent, they should be even happier now rates are being cut.
I have no idea where the gold price goes from here, but I continue to believe gold as an asset class can deliver useful diversification benefits in a portfolio and act as a shock-absorber against a range of risks.
Ben Seager-Scott is chief investment officer at Forvis Mazars
