Gold has been one of the best performing asset classes year-to-date, acting as it so often has in the past by presenting investors with a safe haven trade as markets turn skittish.
The unprecedented levels of stimulus being pumped into markets have helped the gold price soar almost 30% in 2020.
Adrian Lowcock, head of personal investing at Willis Owen, said: “Gold has been in the ascendency all year, and now – with the US on the verge of announcing yet more stimulus to help its people and its economy overcome coronavirus – that trend shows no sign of ending.
“We think gold could easily go through $2,000 this year, with this week’s US Federal Reserve meeting potentially triggering another move up, as investors fret about the outlook for the US dollar given the huge spending plans the Federal Reserve has been forced to sign off.”
The extensive stimulus is supportive of the gold price and has contributed to a weaker US dollar due to a significant increase in supply. This is bullish for gold partly because gold is priced in dollars, making the precious metal cheaper for international buyers.
“Some investors are also clearly concerned about the long term impact of the actions of central banks,” Lowcock said. “If central banks can just digitally create money out of thin air, then it could easily undermine the fiat money system, potentially devaluing currencies or worse. Gold would look very attractive in that scenario.”
Inflation is another consideration. It might not be an issue now, with investors more concerned about deflation, but with so much money being pumped into the system there is the potential for inflation later on. Gold has a long history of protecting against inflation over the longer term.
It could be easy to assume it is too late to buy gold now, given the price moves it has already made, and Lowcock concedes it has rallied significantly. But he says the nature of this once-in-a-lifetime crisis means the safe haven trade remains in place.
“It is fair to ask whether, after a rally of this magnitude, if gold has any value left for investors,” he said.
“However, this crisis is unfortunately far from over. We are yet to see the full impact on the US economy, or the global one, and more stimulus looks set to come as countries spend vast amounts to keep unemployment down.
“Against that backdrop, we think gold has further to run as the value of currencies around the world diminishes.”
One way to access the gold price directly is through an Exchange Traded Fund (ETF) which tracks the spot price of gold. However, there are also a range of gold-focused funds buying shares in gold mining companies, which can give you a leveraged way to access the gold price.
Blackrock Gold and General – Evy Hambro manages this fund and looks for well-managed, larger gold miners to invest in. He is conscious of risk so focuses on companies with strong balance sheets that are well managed. The fund invests primarily in gold miners but will have exposure to other precious metals and minerals.
Adrian Lowcock, Chris Tuite
Head of personal investing Director & Head of Consumer Finance
Willis Owen MRM London
07849 846387 020 3326 9925
Notes to Editors
Willis Owen is one of the UK’s leading online investment service providers. Founded more than 20 years ago Willis Owen now has around £1bn of funds under management and has acted as an intermediary for over 150,000 customers and hundreds of millions of pounds worth of investments,
Willis Owen Limited is authorised and regulated by the Financial Conduct Authority.