Will Gold Continue to be a ‘Safe Haven Asset’?

‘Safe haven assets’ are investments that don’t tend to be buffeted by the winds of change. For many, gold is seen as the ultimate safe haven, and its behaviour during the investment ‘corona-coaster’ of the last few months neatly demonstrates its attraction. The precious metal started this year at $1529 an ounce, and now has a spot rate of $1985[1], as investors pour their money into precious metal investment.

But does gold truly deserve its status as a safe investment and will it remain a safe haven asset? The metal’s price can fall as well as rise – meaning that it is not without risk. We weigh up both sides.

What are the benefits and disadvantages of investing in gold?

Benefits:

  • Gold’s stability means it is often referred to as a ‘safe haven’ asset in turbulent times, making it a possible investment priority for concerned investors.
  • Its historical presence as a form of currency since the Roman empire and its tangibility make it appear safe and familiar: you can see it and hold it.
  • Gold can act as a store of value and hedge against rising inflation – as investors realise their money is losing value, they focus on investing in an asset that traditionally keeps its value.
  • Gold can be an attractive diversifier in a portfolio.

Disadvantages:

  • Complex and long gold mining processes can mean limited supply, which can cause volatility if the demand for gold suddenly grows.
  • It is difficult to determine gold’s real value because it generates no income and therefore has no ‘fair price’ – its value is driven by speculation.
  • Capital gains tax (CGT) implications could apply depending on the type and value of your gold investment. Speaking to a financial adviser could give you a better understanding of your CGT position.
  • Investing in gold provides no income yield: it does not pay interest and neither does it pay a dividend.
  • There could be secure storage and insurance implications if you hold gold coins or bullions.

How does economic uncertainty affect gold-related investment?

Global political and economic turbulence often means investors turn to gold. With current uncertainty at exceptionally high levels due to the pandemic, and due to its above-mentioned ‘safe haven’ qualities, investing in gold could play a role in diversifying your portfolio. Speaking to an expert financial adviser could help you to better position your portfolio to weather market storms.

What about investing in gold for retirement?

Investing for retirement means being able to generate an income that is sustainable to support you through your later years in life. By its very nature, gold doesn’t generate a revenue stream and, therefore, couldn’t provide a retirement income. However, gold can form part of a well-diversified portfolio, and you can choose how you want to invest in it.

If you want to discuss your current investments, or other investment opportunities, speaking to an expert financial adviser could help you make the right decision.

This article is for generic information only and is not suggesting a suitable investment strategy for you. As with any investment, investment in gold carries risk and could return less than your original investment amount. You should seek independent financial advice that takes your individual circumstances into account prior to proceeding with any course of action.

1. Prices correct as of 11th August 2020, source: https://www.bullionvault.com/gold-price-chart.do