Could gold be the #1 asset to hold in the next year?

Does gold have stunning investment appeal right now?

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.

Since the start of the year, the price of gold has risen by 12%. This is a relatively impressive result at a time when stock markets across the globe have risen sharply. They have benefitted from improved investor sentiment, which usually makes a defensive asset such as gold less appealing. Therefore, the fact gold has risen in price is somewhat surprising in that respect.

Of course, the world faces significant geopolitical uncertainty from the situation in North Korea. It remains difficult to predict how events will unfold. For the gold price, it could be a key catalyst which could send it sharply higher or lower over the next year.

Upside potential

Looking ahead, the gold price could be positively impacted by continued uncertainty regarding North Korea. The tension which has been building in recent months has shown little sign of decreasing, with missile launches and strong rhetoric causing investors to become increasingly risk averse at times. While such periods of risk aversion have not caused a bear market for global share prices, they have the potential to do so should they continue or even increase in scale and length.

Gold has historically been seen as a store of wealth. During major recessions and depressions in the past, it has generally been in high demand. The same situation could take place if the situation regarding North Korea worsens, and this could push the price of gold higher.

Since gold trades 30% below its all-time high of $1,837 per ounce, it could be argued that there is significant upside ahead. This could make gold miners more attractive to long-term investors, with their profitability having the potential to increase over the medium term. They may also provide a dividend, which could counter the lack of income return that a direct investment in gold would offer.

Downside risk

Of course, the gold price could fall in future. The situation regarding North Korea may improve over the coming months. Looking back at the country’s recent history, missile launches and strong rhetoric have been a common theme – especially in recent years. Thus far, a military conflict has been avoided, and it could be argued that the status quo will be maintained over the long run.

This could cause interest in gold to diminish. Investors have generally been bullish in 2017 and if the threat from North Korea subsides, this optimism could prompt a significant rise in share prices in the coming months. As such, the price of gold could fall and leave investors in the precious metal nursing losses.

Takeaway

While the outlook for gold is uncertain, it may be prudent for investors to consider the appeal of gold miners. They may benefit from a higher gold price should tension in North Korea remain high, and in some cases they may offer a strong investment case due to a wide margin of safety.

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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »