Has Gold’s Moment Finally Come?

Gold may be shining again but Harvey Jones isn’t dazzled.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Gold is starting to shine again. On Thursday, the price jumped $56 in a day to hit $1,249 an ounce, and it’s now up nearly 15% in the last month. You don’t need me to tell you the reason. Gold is seen as the ultimate safe haven, and with more than £140bn wiped off the value of the FTSE 100 in the last fortnight, investors are clamouring for sanctuary. Cometh the hour, cometh the precious metal. Is this the moment gold bugs have been waiting for?

All that glisters…

I’ll make it clear: I’m no gold bug. For years, I’ve swatted away their arguments like so many gnats. In June 2014, almost two years ago, I argued on this site that “gold is the riskiest investment in the world”, and rather than a store of value it’s a massive store of risk.

At the time, gold traded at $1,249, almost exactly the same price as today. But it had fallen sharply since peaking at around $1,900 in August 2011. Anybody who invested at its peak would have lost more than a third of their money. You can also lose money on the FTSE 100, naturally, which is down a quarter since peaking at 7,122 last April, but we know stocks and shares are risky, where gold has this wholly unmerited aura of security.

Gold rolled

Gold can be highly volatile. The price spiked to $850 in 1980, following the Islamic revolution in Iran and Soviet invasion of Afghanistan, then collapsed to $250 as the panic subsided and stayed there for more than 20 years. Gold doesn’t always have the Midas touch. 

There was a fresh rush into gold after the financial crisis but many came over to my side after the subsequent price collapse. Last August, when Black Monday in China triggered a global stock market meltdown, the gold price was oddly unmoved. Wisely, in my view, investors decided to put their faith in an equity market rebound rather than weigh down their portfolios with gold bars.

Golden days

Now share prices are falling again and nobody knows when the rout will end, as a collapse in sentiment threatens a negative feedback loop. Investors are rushing into fixed interest, driving 10-year bond yields to near-record lows in Europe and the US (they’re already negative in Japan). As a global currency war looms, I can see why some might prefer precious metal over sullied fiat currencies.

I also accept that one of the arguments against gold (that it doesn’t pay interest) scarcely applies in an age when cash and bonds barely pay interest either.

Yet I’m still not touching gold. Instead, I’m doing what I did after Black Monday and buying shares at bargain prices. I still believe the best way to make money from investing over the long term is to buy dividend-paying stocks and reinvest those payouts for growth. With the FTSE 100 down sharply and yields topping 4% a year, today’s market falls are a golden buying opportunity, rather than an opportunity to buy gold.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »