Is gold a good investment?

It's been almost impossible to avoid hearing about gold and silver so far this year.

Gold hit the headlines at the end of January as the precious metal reached an all-time high of almost $5,600 an ounce. Silver also climbed to a record level around the same time of close to $120 an ounce. These prices marked the end of an impressive year for both metals, with each increasing notably.

Since then, prices have been volatile, swinging down and then back up over the following days. You may be wondering why this has happened, and whether gold is a good investment.

Find out what’s driven this modern day gold and silver rush, and where we are now.

Uncertainty can push up precious metal prices

Historically, investors have viewed gold, silver, and precious metals as more stable investments.

So, when markets fluctuate or investors think there could be volatility, metals can become more popular.

You can find out more about why investors see gold as valuable during periods of uncertainty on our explainer page. But in a nutshell:

• there’s a limited amount of gold in the world, which is what gives it value;
• it tends to hold this value better than ‘paper’ money, making it a useful hedge against inflation;
• it’s separate from businesses and governments, so isn’t at risk of companies or governments collapsing, like stocks and bonds could be; and
• because of its broad appeal, gold’s fairly liquid, meaning you can usually access the value of your investment easily.

Metals such as silver can also have practical, industrial applications. With a need for silver in many industries, this further pushes up prices.

It’s these factors combined that has led to gold and silver rising in value so much this year.

• Political uncertainty - in particular, the wars in Ukraine and the Middle East and unpredictable US policy created a sense of instability.
• High inflation - inflation has been above target in many economies, especially in the US. This reduces the purchasing power of those country’s currencies.
• A weak dollar - alongside inflation reducing a currency’s purchasing power, the dollar fell in value relative to other currencies. Also, gold and silver are traded in dollars, making them attractive to foreign buyers when the currency is weak.
• Anticipation of interest rate cuts - these can make gold more attractive as interest-paying assets become less lucrative.
• Industrial uses - silver is important for electric vehicle production and Artificial Intelligence (AI) infrastructure.

Altogether, this is what led to the all-time highs we saw at the end of January.

Prices have continued to fluctuate

While gold and silver hit these new highs, prices have been volatile since. In fact, following the records set in January, both gold and silver have fallen in value.

By 30 January, gold had fallen 9.1%, while silver fell even more sharply by 26.7%.

This was in response to the announcement that President Trump had nominated Kevin Warsh to be the new chair of the Federal Reserve (Fed), the central bank in the US.

The Fed chair is responsible for setting monetary policy in the US - in other words, looking after the country’s money, such as managing inflation and interest rates.

Leading up to this decision, analysts speculated about who President Trump might choose. In part, this uncertainty led to the increases in gold and silver prices.

But markets and investors were fairly pacified by Warsh’s appointment. A former Fed Governor, he’s seen as a relatively safe and experienced choice.

These kinds of announcements can influence gold and silver, bringing prices back down.

The opposite is also true, as investors respond to news that creates more uncertainty.

For example, the US downed an Iranian drone flying towards an American aircraft carrier on 4 February. In response, gold rose back above $5,000.

Events like this can create geopolitical tension. So, investors move to gold again for the relative stability it can offer, compared to other investments.

Gold can be a useful investment - but there are no guarantees

All investments can fall in value as well as rise, and you may get back less than you invest. And, past performance doesn’t necessarily show what will happen moving forwards.

Gold and silver each enjoyed strong years. But there’s no guarantee that they’ll continue to rise in value, or be sensible to invest in during periods of uncertainty in future.

That said, precious metals like this could offer a bit of diversification to a portfolio. As they’re often influenced by different factors than stocks and shares or bonds, gains in gold or silver could offset losses when markets are weak.

Meanwhile, company and government-based investments might generate stronger returns when gold falls. Again, this isn’t guaranteed.

PensionBee’s 4Plus Plan invests in gold through exchange-traded commodities (ETCs).

This plan aims to achieve long-term growth of 4% a year above the Bank of England base rate. It’s actively managed, with a team of investment experts keeping an eye on its holdings over time in response to market conditions.

You can find out more about the 4Plus Plan, including its aims and what it invests in, on our website.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.