When stock markets collapse and the global economy is threatened, a fortune normally borne by the necks of wealthy people has its moment to be in the limelight.
Spotlight: Gold is a safe haven in stormy times
Step forward Gold, regarded by many as a safe haven in stormy times.
In recent weeks, as markets around the world have corrected sharply and a full-blown trade war between two of the world's leading powerhouses – the United States and China – seems increasingly likely, the price of gold appears to have risen.
From an annual low of $ 1,180.40 an ounce in August, it rose to $ 1,233.85 by the end of last month before dropping slightly to $ 1,232.
Although the price is still lower than at this time last year, there are some investment managers who now believe that gold plays a crucial – albeit minor – role when it comes to building a diversified portfolio.
One of these people is David Coombs, head of the multi-asset investment house Rathbones. Typically skeptical about gold as an asset class, he has built a 3 percent stake in the Rathman-managed Rathbone Strategic Growth portfolio worth £ 532 million. This is done by investing in a wide range of assets, including stocks, bonds, private equity and commodities.
"My long-term view on gold has not changed," says Coombs. "If you like it, wear it and do not invest in gold does not provide income, which is a big no to many investors, especially as interest rates rise and money and bond yields become more attractive.
"But given the uncertain times we are experiencing here in the UK with all the speculation about Brexit, I really believe it has a hedge role."
According to Coombs, the hedge against the risk of "stagflation" [economic stagnation combined with inflation] triggered by a Brexit deal that is not executed.
"The UK economy is prone to stagflation when a Brexit deal is ousted," he explains. "Businesses will stop at investment projects, and UK economic growth may slow down and unemployment rise with continued inflation – the ingredients for stagflation. In this case, gold is a store of value. "
Although it is a pessimistic voice (a view not shared by investment guru Neil Woodford (see pages 54-55)), Coombs is not the only one who views gold as an asset diversifier.
Investment Trusts Personal Assets and Ruffer are both invested in gold. Like the Coombs fund, both Personal Assets and Ruffer are broadly diversified and designed to preserve the real value of investor shares. Personal Assets currently has eight percent of its assets in solid gold (bullion), while Ruffer owns seven percent through holdings in gold mining companies.
Wealth Manager Tilney's Jason Hollands says some of the retail portfolios own about two percent gold. He says, "We do not consider gold as a low-risk asset. Gold prices have suffered long losses at times, and four have fallen in the last five consecutive 12-month periods. "A strong dollar is also not good for gold because the currency is considered a safe haven, in fact, a strong dollar often goes hand in hand with gold price weakness.
"Our reason for keeping gold for customers is insurance in the event of a breach of trust in the financial system. Like most forms of insurance, it will only act as a revenue driver in exceptional cases. "
There are several ways for investors to gain gold.
The cheapest and simplest approach is to buy an investment that captures the price of gold. These so-called exchange-traded funds are provided by iShares (part of asset manager BlackRock) and Invesco. They can be purchased through a stockbroker and most fund platforms.
Purchases are subject to a trading fee and an annual fee is charged to the fund. For example, iShares Physical Gold will be charged 0.25 percent.
An alternative approach is to buy a fund with a limited exposure to gold – such as personal assets, Rathbone Strategic Growth or Ruffer. Or more targeted funds such as BlackRock Gold & General and Ruffer Gold.
With the exception of personal assets, these funds invest in equities of gold mining companies rather than physical gold. Companies such as Randgold Resources and Fresnillo – both components of the FTSE 100 Index – and Newcrest, based in Australia.
Duncan MacInnes, Investment Director at Ruffer, believes there is reason to invest in gold mining stocks instead of buying a fund that sets the gold price.
He says, "Over the past 15 years, gold has gone up by about 110 percent. However, shares in mining-related stocks fell by an average of 30 percent over the same period. "
He adds, "Gold companies are cheap and unloved. The economic environment could be favorable for gold, or the market could eventually revalue the value of gold mining companies. "
MacInnes believes that the planned merger of Randgold Resources and the Canadian-based Barrick Gold – "a total deal" – could lead to industry consolidation that would result in lower costs and more shareholder return.
Finally, physical gold (bullion and coins) can be purchased from an online gold bullion trader such as Goldcore and Bullion Vault or the Royal Mint. Buyers may request that they be stored, paid or delivered.
For Christmas, Royal Mint offers the golden cracker set – six crackers with a one-ounce ingot, three gold coins, a silver money clip (half gold gold), a gold diamond necklace and gold cufflinks between them. Everything for only £ 5,000.