Gold is booming - but investors lured in by the hype could lose out, warn experts

Gold is experiencing a remarkable surge in value, and many investors are eager to take advantage of this trend. However, experts caution that those who are drawn in by the excitement may face significant risks. Emma Siebenborn, the strategies director at Hatton Garden Metals, a family-owned gold dealership in London, recently showcased a collection of old jewelry that could be worth around £250,000. This jewelry, which includes rings, bracelets, and necklaces, is a small sample of what the shop buys daily. The gold from these items will be melted down and recycled. Alongside this collection, there were also gold coins and bars displayed elegantly in a tray. The largest gold bar weighed about 1 kilogram and was valued at approximately £80,000. The coins included larger Britannias, each containing one ounce of pure gold, as well as smaller Sovereigns. The recent rise in gold prices has led to a significant increase in demand, with Zoe Lyons, Emma's sister and the managing director, noting that they have never seen such a high level of interest. People are often seen queuing outside the shop, filled with excitement but also anxiety about the future of the gold market. The price of gold has skyrocketed by more than 40% over the past year, reaching an all-time high of over £3,500 per troy ounce in late April. This surge marks the highest price ever recorded, even when adjusted for inflation, surpassing the previous peak in January 1980. Economists attribute this increase to various factors, including the unpredictable trade policies introduced by the Trump administration, which have created uncertainty in the markets. Gold is often viewed as a safe investment during turbulent times, and many investors are turning to it as a reliable option. Louise Street, a senior markets analyst at the World Gold Council, explained that the current conditions are akin to a perfect storm for gold. Concerns about inflation and the potential for a recession have heightened its appeal. However, while gold is generally considered a stable asset, it is not immune to price fluctuations. Historically, significant increases in gold prices have often been followed by sharp declines, raising the question of whether a similar scenario could unfold again. Gold has been regarded as a valuable asset for centuries due to its rarity and intrinsic value. According to the World Gold Council, only about 216,265 tonnes of gold have ever been mined, and this number is gradually increasing by approximately 3,500 tonnes each year. This limited supply contributes to gold's reputation as a safe haven asset that retains its value over time. However, gold does not generate dividends like stocks, nor does it provide a steady income like bonds. Its industrial applications are also relatively limited. The appeal of gold lies in its physical nature, existing outside the banking system. It serves as a hedge against inflation, as currencies tend to lose value over time while gold maintains its worth. Russ Mould, an investment director at AJ Bell, emphasized that gold cannot be printed by central banks, making it a secure choice during economic crises. Recently, there has been a notable increase in demand for gold from Exchange Traded Funds (ETFs), which are investment vehicles that hold gold and allow investors to buy shares in the fund. This trend has contributed to the rising price of gold. Historically, gold prices have surged during times of global turmoil, such as wars or financial crises. The current rise in gold prices is also linked to the confusion surrounding the Trump administration's policies. President Trump publicly criticized Federal Reserve Chairman Jerome Powell for not lowering interest rates quickly enough, which led to a decline in stock markets and an increase in gold prices. Additionally, central banks worldwide have been purchasing more gold to bolster their reserves, particularly after the Russian Central Bank's reserves were frozen due to the invasion of Ukraine. This has resulted in a significant increase in demand for gold from central banks. Some countries are concerned about the safety of their reserves in the dollar system, prompting them to turn to gold as a more secure option. Furthermore, the fear of missing out, or FOMO, has become a driving force in the gold market, with more individuals eager to invest in gold. Zoe Lyons noted that people are keen to get their share of the gold market. However, the pressing question remains: what will happen next? Some experts believe that gold prices will continue to rise due to ongoing economic uncertainty and central bank buying. Goldman Sachs has projected that gold could reach $3,700 per ounce by the end of 2025. Conversely, others express concern that the rapid increase in price may lead to a market bubble. In the past, significant spikes in gold prices have often been followed by sharp declines. For instance, in 1980, the price of gold plummeted from $850 to just $485 within a few months. Similarly, after the peak in 2011, gold prices experienced a significant drop. Some analysts predict that the current gold market may also face a similar downturn. Jon Mills, an industry expert, suggested that the price of gold could fall to $1,820 in the coming years as mining firms increase production and central banks reduce their buying. However, Daan Struyven believes that while there may be short-term fluctuations, the overall trend for gold will continue to rise. He posits that if there is a peace deal in Ukraine or a reduction in trade tensions, investors may shift their money out of gold and into riskier assets like stocks. Nevertheless, the long-term demand for gold is likely to remain strong due to the uncertain global landscape. Russ Mould also anticipates a potential pause in the upward trend of gold prices, but if economic conditions worsen and interest rates are lowered, gold prices could rise even further. Investors must carefully consider whether the current high price of gold is a temporary peak or the beginning of a sustained upward trajectory. Some experts warn that those who are buying gold now due to the hype may find themselves disappointed if the market shifts direction. Susannah Streeter, a money expert, advises that investors should not concentrate all their resources into gold but should instead maintain a diversified investment portfolio.