Why is the Gold Price Rising? Five Forces Driving the Precious Metal
Hoarding gold is a centuries-old reaction to times of crisis, and the aftermath of the EU referendum vote is no different.
The yellow metal has soared in value since Britain voted to leave the European Union as investors shoot towards traditional safe haven assets. Prices have reached a three-year high as Brexit worries intensify.
An ounce of gold is now worth $1,327, up from $1,257 on June 23. However, the spike follows a sustained rally in the gold price throughout the year. The metal is now worth a quarter more an ounce than it was at the end of 2015. But there’s a dilemma: Is the rally already over, or would it be foolish not to buy gold?
Palmer reflects on the Brexit effect; interest rates; the dollar; the Eurozone crisis; and China’s demand.
Investing in the companies that mine gold, rather than physical gold, could present an opportunity to take advantage of the rally.
Last summer, when gold bounced 6% between July 22 and August 21, the Smith and Williamson Global Gold and Resources Fund returned 11.5% over the same period.
Gold miners have been biggest beneficiaries of Brexit uncertainties, with shares in UK-listed firms Randgold, Fresnillo, Centamin and Acacia soaring since June 23.
Investors in these companies stand to gain an operating leverage: as the gold price goes up, the miners’ margins improve, so the potential return to investors goes up—often at a faster rate than the rise in gold. Thus equities become a better bet than holding the underlying commodity.