Should You Invest in Gold at This Point?

Why is the Price of Gold Surging?

There’s a global gold rush underway. The precious metal hit an all-time high price this week.

According to data from FactSet, the spot price of gold closed on August 21 at over $2,514 per Troy ounce — the standard measure for the metal, equivalent to 31 grams. That means a 400 Troy ounce bar is worth over $1 million.

This week’s record high marks a surge of hundreds of dollars per Troy ounce over the past year. The August 20 price was nearly $620 higher than this time last year.

Several factors are behind the recent surge. Interest in buying gold often surfaces during times of uncertainty, such as underlying concerns about inflation and the strength of the US dollar, prompting some to seek alternative places to park their money. Gold also spiked during the early days of the COVID-19 pandemic.

Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management, said the main drivers of gold’s recent price increase are a weaker US dollar and expectations that the Federal Reserve will cut benchmark interest rates next month. With particular attention focused on the health of the job market, all eyes will be on Fed Chair Jerome Powell’s speech on Friday in Jackson Hole, Wyoming.

Joe Cavatoni, a senior market strategist at the World Gold Council, pointed to another factor: strong demand from central banks, which is currently well above the five-year average. Mr. Cavatoni said this “reflects growing concerns about inflation and economic stability.” He also noted that ongoing geopolitical tensions, along with other factors, have prompted some to buy more gold in recent times.

The wars in Ukraine and Gaza have significantly increased global instability. And many countries, including the US, are in a volatile election year — which could prove pivotal for future economic policies.

Should You Invest in Gold?

Proponents of investing in gold call it a “safe haven,” arguing that it can help diversify and balance investment portfolios, as well as mitigate potential risks in the future. Some also feel more comfortable buying something tangible that has the potential to increase in value over time.

Mr. Staunovo’s team at UBS forecasts the gold price to reach $2,600 by the end of this year and $2,700 by mid-2025. UBS believes that lower US interest rates and a weaker dollar will support inflows into gold exchange-traded funds (ETFs), thus boosting investment demand.

However, future profits are never guaranteed, and not everyone agrees that gold is a good investment. Critics argue that gold isn’t always the inflation hedge that many claim, and there are more effective ways to protect against potential capital loss, such as through derivative-based investments.

The Commodity Futures Trading Commission has previously warned people to be cautious when investing in gold. The Commission stated that the precious metal can be highly volatile, and prices surge when demand increases. That means “when worry or economic uncertainty is high, those who typically profit from the metal are sellers.”

The Commission added that if you decide to invest in gold, it’s important to educate yourself about safe trading practices and be vigilant against potential scams and counterfeits in the market.