GOLD spiked above $4,400/oz on Tuesday after a steady rally over the past week, and is currently hovering just under that level.
Experts say the causes of the rally are continued central bank buying, a wobbling dollar and cooling US rate expectations following Friday’s non-farm payrolls data showing 23,000 jobs were lost last month.
But one gold specialist said the real reason for the rally is more profound: “The cause is decades of credit expansion that governments cannot stop and will not admit.”
They also advised buying into gold steadily rather than in one go may be the better route for most investors, as, “at these levels, investors risk paying a panic premium for something that produces no income”.
At the beginning of the year, the price of gold hit record highs, rising above $5,550/oz in late-January.
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said: “Gold’s 11% surge past $4,400/oz is no accident. It’s cooling US rate expectations on softer employment data, and a wobbling dollar doing the heavy lifting.
“Add sustained central bank buying, geopolitical friction and technical breakout momentum, and you’ve got a rally with real legs.
“Long-term, the case for safe-haven exposure still stacks up, but buying mid-rally means risking overbought levels, so drip-feeding in via pound-cost averaging is the sensible route rather than piling in at the top.
“Access comes via physical bullion, ETFs (exchange-traded funds) for easy liquidity, mining equities for operational leverage, or vaulted digital gold. Each has its own trade-offs on cost and convenience.
“Remember: gold pays no income. It’s insurance, not an investment, an inflation hedge and a stabiliser when markets turn ugly. Most planners still cap it at a modest 5%–10% of a balanced portfolio.”
Samuel Mather-Holgate, Managing Director at Swindon-based Mather and Murray Financial, said “gold is rallying because investors are nervous and the old fear trade is back in fashion”.
He continued: “Weaker than expected US jobs data, shifting rate expectations, inflation worries, central bank demand and geopolitical risk have all helped push bullion higher.
“But buying physical gold after a vertical run is not automatically prudent. At these levels, investors risk paying a panic premium for something that produces no income.
“For most long-term investors, gold is best treated as portfolio insurance, not a get-rich-quick trade. A modest allocation can help diversify, but the more interesting route may be quality gold miners.
“Unlike bullion, good gold miners can generate cash, reinvest, pay dividends and compound returns when margins expand. Gold bars, meanwhile, just sit there looking expensive.”
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, took a contrarian stance, saying “gold isn’t rising, currencies are falling”.
She continued: “That distinction is the whole story. Everyone blames this week’s move on the weak US jobs number and nerves ahead of the inflation data. Those are triggers, not causes.
“The cause is decades of credit expansion that governments cannot stop and will not admit. Note who is buying, central banks now hold a larger share of reserves in gold than in US Treasuries, for the first time since 1996.
“They are voting with their reserves while savers still argue about entry points. Is now a good time? That’s the wrong question. You don’t time your insurance, you hold it.
“There are many ways to hold gold but if gold is money and everything else is credit, most portfolios hold far too little.”
Paul Denley, CEO at London-based Oakham Wealth Management, was phlegmatic: “Gold’s latest rally reflects a familiar mix: weaker US jobs data, shifting expectations for interest rates, geopolitical uncertainty and continued central bank demand.
“But after such a sharp move, I wouldn’t chase it. Gold produces no income and its price can be surprisingly volatile, so it is better viewed as insurance than as a core driver of portfolio returns.
“For most investors, a modest allocation of around 5% can provide useful diversification when core equity and bond markets misbehave.
“The simplest route is usually a physically backed gold ETF or ETC (exchange-traded commodity). Alternatively, gold mining shares or funds provide exposure, although they introduce equity and company specific risk.
“Physical bullion or coins offer direct ownership but come with storage and insurance costs. If buying from scratch today, I would phase the investment in over time.”
Guy Skinner, Director at London-based Citygate Financial Planning, believes geopolitical uncertainty, specifically the ongoing conflict in the Middle East, along with inflation concerns are at the heart of the current rally.
He said: “Gold, the usual proxy for global instability is starting to rise, as the world is currently very uncertain and inflation is rising, which is attracting buyers to store value.”
