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Gold price hits record high – should you invest?

Posted: 27 July 2020 9:23 pm
News

New investors are jumping into gold as prices soar. But is it too late to invest?

When our two biggest trade partners start arguing, you know it’s going to be a good week for the gold market.

After a record-breaking month, gold prices hit a fresh high Monday just as US-China relations fell to a new low. It comes as Beijing ordered the closure of the United States consulate in Chengdu last week after Washington shut China’s Houston consulate and accused it of spying.

This latest chapter saw the price of gold in both US and Australian dollar terms rise more than 2% during the day, with the spot price reaching US$1,922.63 an ounce by the late afternoon.

Gold stocks were also sent soaring. Dozens of small-cap miners rose as much as 60% by market close, while big-caps Northern Star (NST) and Saracen (SAR) hit new all-time highs.

Large-cap gold company one-month performance

CodeCompanyShare price change (one month)*Market cap (billions)
NCMNewcrest15.67%28.2
NSTNorthern Star16.14%11.4
EVNEvolution9.9%7.7
SARSaracen19.78%6.79
RRLRegis Resources5.94%14.01

Source: ASX | *To 27 July 2020

The growing popularity of gold this year has seen a wave of new investors entering the market, according to Perth Mint’s investment research manager Jordan Eliseo.

“Most notably SMSF trustees, but also younger Australians looking to build their wealth,” Eliseo told Finder. That includes an uptick in gold buyers using the Mint’s new app, GoldPass, he said.

“The fact that gold is now attracting a broader range of investors suggests that demand is likely to be supported for some time to come.”

Funds moving into gold ETFs have also grown this year. The Perth Mint Gold (ASX:PMGOLD) ETF has seen its holdings rise by more than 50% in the first 6 months of the year with the ETF price hitting a new high last month.

Why are gold prices rallying?

Gold has historically been seen as a safe haven for wealth. During times of economic uncertainty and recession, the price of gold tends to rise as investors look for a safe place to put their funds.

“Gold has a reputation as a trusted hedge against share market falls as it typically rallies when markets sell off,” Eliseo said.

“Last year the gold rally was driven by declining interest rates and yields on government bonds"

This new rally is simply an extension of what we saw last year, according to IG’s market analyst Kyle Rodda.

“Effectively, the covid-19 crisis accelerated gold’s upward trend,” said Rodda.

The price of gold has risen by more than 25% this year and 7% in the last week alone as relations between the US and China deteriorated further.

Should I buy gold?

With gold surpassing record highs this week, surely it’s too late to invest?

Not necessarily, according to IG’s Kyle Rodda, who said there are two sides to the argument.

“From a punters point of view, gold looks technically overbought and sentiment is incredibly bullish – sometimes an indication risk-reward isn’t great here,” Rodda told Finder.

“But for an investor who might be looking to add gold to their portfolio, the flood of money that’s hit the market this year, as well central bankers willingness to hold rates very low, means buying gold even at these historic levels may prove a handy asset to own.”

There are many different ways to profit from rising gold prices, from the relatively safe purchasing of physical bullion to the high-risk gold CFD trading on the derivatives market. These are the main ways you can invest:

Of course nobody can truly predict whether gold prices will continue rising – as always, past performance is not an indicator of future success.
To find out more about investing in gold, check out our full guide.

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