Market News

Andrew Mann from JM Finn discusses why there's a strong strategic case to invest in gold.

Gold used to be viewed as the financial-market equivalent of hugging a teddy bear - reassuring in a crisis, but not much use for making money.

It doesn’t pay interest, didn’t always rise when markets fell, and for years it lagged behind stock returns. Even the UK’s Labour government sold off half its gold between 1999 and 2002, thinking it could do better elsewhere.

But times have changed. Since that sale, gold has quietly outperformed most major assets and in Sterling terms has delivered about three times the return of global equities.

Andrew Mann from JM Finn (Image: JM Finn)

After the 2008 crash, investors started to worry that financial markets had become too fragile and gold, once a fringe holding, became a core part of many portfolios alongside stocks and bonds.

Recently, gold’s traditional strengths have come back into focus - sticky inflation, global geo-political tensions, and the likelihood of lower interest rates in the US.

Central banks, especially in emerging markets, are buying more gold to reduce their reliance on the dollar, and more long-term investment strategies now include it as a standard holding.

But the real driver may be America’s rising debt. With borrowing at 123% of GDP, the US is relying on growth and low interest rates to keep things afloat. If that doesn’t work, the likely fallback is printing more money - which tends to weaken the dollar and boost gold.

Looking ahead, the base case seems to be for elevated but volatile pricing, and for investors a small allocation to gold might make sense to boost risk-adjusted outcomes, with many now once again seeing it as a practical way to store long-term purchasing power.

That will not make the path a straight line - but it does mean the strategic case could be stronger than it was a generation ago.

The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.