Gold has been a phenomenal investment this year, protecting savers' nest eggs by making strong returns. But more recently the price has started to decline, leaving owners bemused on whether to stick or switch.
The precious metals's price has risen 22pc thus far in 2020 and has been one of the best places to hold your cash. Returns were so strong, and the outlook so positive, that even famed investor Warren Buffett bought a gold miner for the first time.
The metal tends to be owned by investors because it is a “safe haven” if markets fall. This explains why it did so well earlier this year, and why, as markets recovered, the price fell.
The price dropped from a peak of more than $2,000 per ounce in August to around $1,910 an ounce today, suggesting investors are taking profits made this year. As the price levels out, we ask, is gold still worth the hype?
History rhymes and the facts are not kind to gold onee the price reaches an all-time high. In 2011, after the financial crisis, gold hit $1,800 per ounce but over plummeted to just over $1,000 by 2015. A repeat this time around is certainly possible.
Bjarne Schieldrop of SEB, the bank, warned the peak is “probably behind us” and that lower prices in 2021 should be expected.
The main driver for the gold price rise this year has been the low yields offered by American treasury bonds.
Gold does not pay an income, so when low-risk bonds or cash offer high yields, investors are less inclined to own the metal. But, when they offer little, such as they did in April, gold becomes more appealing.
Yields fell after the Federal Reserve reduced interest rates and started to print money, known as quantitative easing. Both these factors supported the gold price as QE often leads to inflation, another factor that pushes up the gold price by making bonds and cash less appealing.
However, Mr Schieldrop said this will be short-lived. Bond rates are expected to rise again next year and inflation expectations will fall as the global, and American economy fails to really get going post coronavirus.
He predicted an ounce of gold will be worth around $1,500 during 2021, a potential loss to investors of 21pc.
While predicting the price in the short term is bleak, and there may well be further losses, long-term expectations are much more optimistic.
Duncan MacInnes of the Ruffer Investment Company said he has put 8pc of the fund’s money into gold as he expected it to reach new highs in the coming years, even if there is a short-term fall.
Over the long term, he said, it is a “perfect setup” for the precious metal.
“A decade ago investors were optimistic that central banks would raise rates following the financial crisis but after 10 years we are much more indebted than we have ever been and rates have barely moved,” he said.
If the same pattern materialises in the coming decade, gold should pass its August high. “Over the next decade it is hard to think of an asset that will do better than gold,” he said.
For British investors there is even more reason to own the metal. Gold is traditionally priced in dollars, making the exchange rate another key factor. If the pound weakens, as some expect in the case of a "no-deal" Brexit, the price of gold will rise, he added.