Is now a good time to invest in gold?

The price of gold is surging as investors pour their money into the so-called safe-haven asset amid global geopolitical and economic tensions.

Gold prices hit an all-time high of $2,140 an ounce at the start of December and is up by around 13.5% this year.

The increases have been fuelled by renewed tensions in the Middle East triggered by the Hamas-Israel war, and by a weakening US dollar and "expectations of interest rate cuts" both in the UK and across the pond, said MoneyWeek.

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But with analysts warning that gold may "struggle to hold onto its gains", said the Financial Times, some investors are questioning whether to add the yellow metal to their portfolios.

What else drives the gold price? 

As a "rule of thumb", said Unbiased, the gold price rises when there is uncertainty or negativity in other areas of the market – sometimes as a result of geopolitical instability – and falls when growth is strong. 

A "weakening" of the US dollar can also send prices up, the site added, as can natural events such as "good monsoons", as "the affected countries invest more of their wealth and influence global prices".

Beyond economic and political events, a "sudden change to the supply or demand of gold" will influence the price, said the Royal Mint. The price also tends to rise when interest rates are low or inflation is high, as "paper money may lose value, leaving gold with a stronger purchasing power".  

How to buy gold

Physical gold bars or coins can be bought from government mints, such as the UK's Royal Mint, and from some precious metal dealers and jewellers.

However, the market is unregulated, warned MoneyWeek, "so there is a risk of scams". To "protect yourself", check whether a dealer is part of the London Bullion Market Association.

Investors can also invest indirectly by purchasing shares in mining or processing companies, or in funds that build portfolios of these firms. "You don't get to own physical gold," said Forbes Advisor, "but you do get exposure to the rise and fall of the price".

Pros and cons of investing in gold 

Investing in gold brings the "crucial benefit of portfolio diversification", said The Times Money Mentor, "which means holding assets that move in price independently and differently from each other".

There are "tax advantages" too, as bullion coins purchased from the Royal Mint are classed as legal currency, so are exempt from capital gains tax.

And as a safe-haven asset, said Unbiased, gold can bring "stability to your portfolio". Precious metals typically "preserve and even increase their value" when other assets are struggling. 

Investors need to consider the "unexpected costs" of owning physical gold though, said NerdWallet, such as insurance and secure storage. 

And despite the recent rises, added Unbiased, gold "is not an especially reliable source of growth", with "nowhere near the returns of equities". 

The main purpose of gold as an "investment instrument" is to protect wealth, said The Motley Fool, and "allocating large portions of a portfolio" to the metal will "likely yield poor results". 

According to the site, "most financial advisors generally recommend keeping no more than 10% of a portfolio" in gold and other precious metals. 

Whether gold is a good investment, and when to take the plunge, also "depends on an individual's investment goals".

Ultimately, gold has "no real intrinsic value", said The Times, as investors don't get any dividends or interest, and the only way to make money is by selling at a profit. 

So deciding when to sell is key – but there are no guarantees. The price could tumble if interest rate cuts do not happen as expected next year, but selling now could mean missing out on further gains.