Precious metal with enduring global value

Gold prices climb in times of geopolitical and economic uncertainty. After rising steadily throughout 2024, it has now reached an all-time high of more than $3,000 per troy ounce. This is ahead of projections and shows – as if we needed reminding – that choppy waters are ahead.So, what has brought about the rise in gold prices, and how does it fit into the broader market picture?

For some, gold is the only true “risk-free” asset, offering a safe haven for investors in times of turbulence. Indeed, it has brought a return of 30 per cent over the last 12 months. Gold has distinctive characteristics –solidity, being both tangible and indestructible, having a limited supply and no single ownership. It is universally recognised as valuable. These are traits that currencies or even government bonds, let alone equities, do not possess.

Confidence in gold rises when confidence in other asset classes declines, especially in periods of high inflation or tariff wars. Gold’s recent resurgence has stemmed largely from its security characteristics.

The key driver of recent price moves has been central bank buying. Central banks buy gold to maintain stability and credibility in their monetary systems, and bolster national wealth against economic risks. They hold about one-fifth of all gold ever mined. When they make large purchases, their actions can drive up global prices by both reducing available supply and signalling confidence in gold as a strategic asset.

Since 2022, central banks have been aggressively increasing their gold reserves in order to diversify away from the US dollar and US assets as the budget deficit grew over the Pond. Recent major buyers include Russia, China and Poland.So, gold is a long-term store of value, enjoying high liquidity on the markets, and its permanence has made it a hedge against currency devaluation or inflation.

But the very characteristic that makes it safe also makes it inflexible. And, for all its lustre, gold is still a metal that doesn’t love you back. That’s part of the lesson of King Midas. Gold can only appreciate or depreciate – there is no yield. Hedging by owning gold is all very well, but it doesn’t bring you a regular return.

Diversifying with other low-risk commodities, such as utilities, might yield an income even in difficult circumstances.

According to the World Gold Council, of the 4974.5 tonnes that constitute total gold demand, some 21 per cent goes to central banks and 23 per cent to investment. Investors can purchase bullion itself, certified parcels of gold in various sizes, ranging from wafer-thin packets, to coins (popular sovereign versions being the Eagle, the Krugerrand, or the Maple Leaf – I’ll leave it to you to guess the country for each.) Big Fort-Knox style gold bars are relatively illiquid. But no matter its size, bullion has to be stored and insured.

Since the early-2000s, other investment vehicles have entered the gold market – gold exchange-traded funds (ETFs) allow investors to gain exposure to gold prices without the logistical challenges bullion presents. When investors buy shares in gold ETFs, the funds typically purchase physical gold to back up these shares, creating a direct link between fund flows and physical demand. Gold-mining EFTs allow investment in companies whose returns might move in line with prices.

That said, gold is more likely to be appreciated closer to home. The lion’s share of gold demand (40 per cent) is for jewellery making.

In Scotland, we have been mining and panning for gold for centuries, and ours remains the rarest in the world. The earliest nuggets went to the Crown, but recent yields from the Cononish mine near Tyndrum have helped create Hamilton & Inches’ new Scottish Gold collection. The Edinburgh jeweller’s pieces are future heirlooms, beautiful and scarce. They are valuable for their constituent parts, but also for the meanings we attach to them – this kind of gold yields its own kind of return.

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