Laith Khalaf, Senior Analyst, Hargreaves Lansdown has commented on news that the Royal Mint has announced a surge in demand for gold in the first week of August.
When the Bank of England cut interest rates to 0.25 per cent, transactions increased by 25 per cent on the Royal Mint’s bullion website and there was a 50 per cent increase in sales of gold bars and coins, compared with the previous week. Khalaf also cites a report from the world gold council which said that investment demand for gold hit a record high in the first half of 2016.
Gold has risen by 25 per cent so far this year, from USD1,060 to USD1,330. In sterling terms it has risen by 45 per cent, thanks to the weakening pound. Khalaf says: ‘There has been a veritable gold rush this year, as global economic woes and loose monetary policy have attracted investors to the yellow metal in their droves, and it’s no surprise that the Bank of England’s interest rate cut has exacerbated this trend.
“Gold has benefited from the falling yield on other safe haven assets, in particular cash and bonds. The ongoing clatter of the printing presses in central banks across the UK, Japan and Europe also helps give gold a leg up, as it is a hedge against currency devaluation.
“Gold isn’t a one way bet however, indeed in 2011 it traded above USD1,800 an ounce, and it now sits around 25 per cent lower. Gold is an insurance policy against things going wrong, and as such it should make up only around 5-10 per cent of a portfolio.
“It doesn’t solve the income conundrum either, because gold has no yield, though nowadays cash and gilts are pretty much in the same boat in that respect. Probably the best and cheapest way to get exposure to gold is through an ETF.”