Gold price rises to its highest level in nearly seven years

7 January 2020

The price of gold hit $1,590.90 per ounce on Monday following rising tensions in the Middle East

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Gold prices surged to their highest level in nearly seven years on Monday as tensions in the Middle East deepened following the killing of Iranian military leader Qasem Soleimani.

Gold futures hit a high of $1,590.90 per ounce – the highest price since April 2013 – before falling back to $1,568.80 per ounce, a gain of 1%.

In early trading on Tuesday gold futures were hovering around $1,568 per ounce.

Why has the price of gold surged?

The price of gold has risen because investors are seeking shelter for their cash following rising tensions in the Middle East.

Iranian military leader Qasem Soleimani was killed last week in a drone strike by the US in Baghdad and there are fears the conflict could destabilise the region.

President Donald Trump has threatened to launch further attacks if Iran retaliates.

Iraq’s parliament has voted to expel US troops from the country, while Trump has threatened to hit back with sanctions.

Adrian Ash, director of research at BullionVault, says: "The latest spike in gold prices is being driven by the sudden escalation in US-Iran tensions, which is hitting world stock markets and leading investors to seek shelter.

"But like bullion prices, underlying demand for gold had already turned higher in 2019, most especially among investors in the eurozone, where negative interest rates are forcing savers and investors to find better homes for their money than bank accounts or debt investments.

"Physical gold, securely stored and ready to trade, clearly offers an appealing alternative."

Why gold is seen as a safe haven

Gold retains its value in times of financial uncertainty, which is an appeal for some investors.

As gold is scarce and more can’t be produced at will it tends to maintain its value over time.

Investors see gold as a hedge against market volatility and economic slowdown in times of geopolitical uncertainty.

How to invest in gold

Although gold can be popular at times like this, for most investors it should only make up at most a small fraction of a well-diversified portfolio. There are other safe haven investments available, gold does not produce an income, and the price is currently at a near seven-year high. 

When investing in gold, you can buy coins and bullion bars, either to hold yourself or to be held by a dealer. You can also invest in shares of gold mining companies or specialist funds and investment trusts.

It is also possible to invest in shares of gold mining companies or specialist funds and investment trusts.

One of the easiest and cheapest ways to invest in gold is through an exchange traded commodity (ETC). ETCs are listed and traded on a stock exchange that tracks the price of gold. They are available to UK investors with SIPP and ISA accounts and can be traded on investment platforms.

Gold backed ETCs are held in a vault, while synthetic gold ETCs are designed to track the price of gold by buying gold-related derivatives.

Moira O’Neill, head of personal finance, interactive investor, says: "Whilst gold is a good diversifier, holding 5% or so feels appropriate for a long-term investment. It’s often viewed as a haven and has the potential to perform as one when held for the long term. But gold can have big short-term swings in value and is sensitive to anything from the US dollar, Sterling fluctuations, through to the Indian wedding season."

Sarah Coles, personal finance analyst at Hargreaves Lansdown, adds: “Gold has gained a reputation as a safe haven in difficult times for the world economy, which is why the price got a bit of a bump when news emerged of growing tensions in Iran.

"But despite being a so-called safe haven, it comes with risks. The price isn’t dictated by real-world uses of gold, but is driven by fluctuating demand from investors, so it can be very volatile. Gold also suffers from the fact it attracts no interest and delivers no dividends.

"It is therefore a risky strategy to make gold a significant part of your portfolio, but some investors like to keep a small proportion of their diversified portfolio in is, as a hedge against uncertainty in the world economy."

She says that if you buy physical gold you could easily lose 5% of the value as dealers make their money on selling gold for a premium and buying it back at a discount.

Coles adds: “The easiest and cheapest way to invest in gold is through an ETC, which will track the price of gold.

“If you opt for a synthetic gold ETC you must bear in mind that you are taking on the additional risk associated with the third-party selling the derivatives.”

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