Investing in gold can add stability and diversification to an investment portfolio – especially in times of economic turbulence.

Here’s what you need to know about one of the world’s oldest forms of investment.

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How much gold is there?

According to the World Gold Council (WGC), the total volume of gold mined to date would fit into a cube measuring 21 metres.

Nearly all the world’s gold – about 90% – has been mined since the California Gold Rush of the 1850s. The WGC says that half of the gold mined over the last decade has been made into jewellery. Just over a quarter was turned into bars and coins, while the remainder was used in technology and gold reserves for investment purposes.

Based in South Wales, the Royal Mint produces all of the UK’s gold currency including bullion bars and coins.

Who owns gold?

Gold is measured according to weight. The US holds the world’s largest reserve of gold weighing in at over 8,000 tonnes. According to the WGC, this represents 4% of the 187,200 tonnes of gold that’s been mined to date.

 

After selling off 400 tonnes between 1999 and 2002, when prices were at a 20-year low, the UK accounts for 310 tonnes of gold held in vaults inside the Bank of England

 

What affects the price of gold?

Gold is characterised as being a limited commodity with a relatively static supply. In 2022, the three largest gold-producing countries were China, Australia and Russia, according to Statista.

 

As the supply of gold is relatively limited, the price of gold is highly sensitive to changes in demand. 

 

The graph below shows how the price of gold (per ounce) has changed over the last 30 years. In 1993, its price was around £220. Currently (July 2024), the gold price stands at around £1,860, close to the commodity’s all-time high of £1,930, achieved earlier this year. 

 

Gold price performance

The graph below displays the past performance of gold. Past performance is not a reliable indicator of future results.

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How To Invest In Gold

Jo Groves

Forbes Staff

Published: Jul 12, 2024, 5:37pm

Laura Howard

Editor

Reviewed By

 

Important Disclosure: The content provided does not consider your particular circumstances and does not constitute personal advice. Some of the products promoted are from our affiliate partners from whom we receive compensation. Read More

 

How To Invest In Gold

Capital at Risk. All investments carry a varying degree of risk and it’s important you understand the nature of the risks involved. The value of your investments can go down as well as up and you may get back less than you put in. Read More

 

Table of Contents

Investing in gold can add stability and diversification to an investment portfolio – especially in times of economic turbulence.

 

Here’s what you need to know about one of the world’s oldest forms of investment.

 

How much gold is there?

According to the World Gold Council (WGC), the total volume of gold mined to date would fit into a cube measuring 21 metres.

 

Nearly all the world’s gold – about 90% – has been mined since the California Gold Rush of the 1850s. The WGC says that half of the gold mined over the last decade has been made into jewellery. Just over a quarter was turned into bars and coins, while the remainder was used in technology and gold reserves for investment purposes.

 

Based in South Wales, the Royal Mint produces all of the UK’s gold currency including bullion bars and coins.

 

Who owns gold?

Gold is measured according to weight. The US holds the world’s largest reserve of gold weighing in at over 8,000 tonnes. According to the WGC, this represents 4% of the 187,200 tonnes of gold that’s been mined to date. 

 

After selling off 400 tonnes between 1999 and 2002, when prices were at a 20-year low, the UK accounts for 310 tonnes of gold held in vaults inside the Bank of England.

 

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Capital at Risk. All investments carry a varying degree of risk and it’s important you understand the nature of the risks involved. The value of your investments can go down as well as up and you may get back less than you put in. Read More

 

What affects the price of gold?

Gold is characterised as being a limited commodity with a relatively static supply. In 2022, the three largest gold-producing countries were China, Australia and Russia, according to Statista.

 

As the supply of gold is relatively limited, the price of gold is highly sensitive to changes in demand. 

 

The graph below shows how the price of gold (per ounce) has changed over the last 30 years. In 1993, its price was around £220. Currently (July 2024), the gold price stands at around £1,860, close to the commodity’s all-time high of £1,930, achieved earlier this year. 

 

Gold price performance

The graph below displays the past performance of gold. Past performance is not a reliable indicator of future results.

 

 

 

How is gold priced?

In effect, the gold price is set in the UK. The bullion market, whose accreditation is observed globally, is called the London Bullion Market Association (LBMA). There are two different types of gold prices:

 

Fixed: LBMA members meet via conference call twice-daily to agree a price that clears their outstanding client orders. This is typically used for larger orders. 

Spot: this is a ‘live’ price largely used for buying and selling gold bullion. 

Why invest in gold?

There are several reasons why it can make sense to invest in gold, particularly in times of economic volatility:

 

1. Wealth preservation

Inflation reduces the ‘real’ value of a currency over time. In other words, £10 today buys you less than it did 30 years ago. Gold can provide one way of protecting the ‘real’ value of your wealth against inflation. 

 

During a period of high inflation, as is currently the case, investors may revert to gold as a real physical asset that holds its value. The argument is that gold is a good hedge against inflation as, in theory, increased demand for gold in inflationary periods can result in a rise in gold prices.

 

Over the last 20 years, annual inflation has averaged 3% in the UK, according to the Office for National Statistics. Over the same period, the price of gold has increased by an average of 10% per year (according to WGC). 

 

Adjusting for the inflation rate of 3%, the ‘real’ value of gold has therefore increased by an average of 7% per year. 

 

2. Safe haven

The value of a currency is influenced by a country’s policy on interest rates and money supply. In contrast, the value of gold is a function of supply and demand. As a result, gold is often seen as a safe haven in times of economic and geopolitical volatility. 

 

According to the WGC, global demand for gold jumped 34% in the first quarter of 2022, due to the war in Ukraine. This trend continued through the year, with the WGC commenting: “Colossal central bank purchases, aided by vigorous retail investor buying and slower exchange-traded fund outflows, lifted annual demand to an 11-year high.”

 

3. Portfolio diversification

Along with cash, shares, bonds and property, gold is another form of asset that can provide investors with an element of diversification.

 

Diversification is important because it offers a form of protection against one asset class, such as shares, underperforming. 

 

Gold is often described as having an ‘inverse correlation’ with other asset classes. This means that, if stock markets are falling due to high inflation and economic uncertainty, investing in gold may produce a higher return. 

 

 

The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. - Benjamin Graham