Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
What has happened to gold in 2023? Is now the time to add it to your portfolio?
Reading Time: 6 minutesLet’s face it, 2023 is hardly turning out to be triumphant year for the stock market. Since January the FTSE has slumped 2.81%, while the 250 has fallen 4.78%. Meanwhile, sticky inflation continues to drive higher bond yields.
Under most circumstances, a turbulent year for the markets would usually help support the price of gold. However, we haven’t seen much evidence of this happening over the past few months.
In this article, we’re going to explore to recent performance of gold, and take a look at the chances of the precious metal rising in value. Keep reading for all the details or click on a link below to jump straight to a specific section…
Is gold considered a good investment?
Before we dive into gold’s recent performance, let’s take a quick look at why the precious metal is often a hot pick among investors…
Gold was discovered in 2450 BC – way, way before the idea of trading goods and services for traditional fiat currency was considered a ‘thing’.
In other words, humans have always had a soft spot for trading and owning the precious metal. It’s shiny, easy to transport, can be used to make things, and – perhaps most importantly – its supply is finite, which is NOT the case with bog-standard fiat currency (at least since 1931).
The ‘gold standard’
In 1931 the UK moved away from the ‘gold standard’. This meant that overnight, our domestic currency was no longer tied to the value of the precious metal.
Since 1931, the pounds (or shillings) in our pockets have been worth what the Bank of England says they are worth, and we’ve trusted this system ever since.
Because we’re no longer using the gold standard, central banks now have the ability to manipulate the supply, and therefore value, of our currency.
In 2020 we saw how the Bank of England fell over themselves to create new money out of thin air during the lockdowns. Yet, as we know, nothing in life is ‘free’ and that’s why we’re now seeing the real impacts of quantitative easing in the form of high inflation, a weaker pound, and lower living standards – but don’t expect the government or Bank of England to admit this!
What’s more, according the Office for National Statistics (ONS), losses on the Bank of England’s quantitative easing measures have already cost the taxpayer a cool £30bn over the past 11 months alone. Ouch!
Sadly, the UK isn’t likely to go back to the gold standard. However, because gold will always carry a great deal of intrinsic value, demand for it is unlikely to slide any time soon.
Gold as a store of wealth
Gold is often considered an excellent way to store wealth, especially during times of high inflation. That’s because, as explained above, its supply is essentially finite so its value cannot be easily manipulated unlike fiat currency. Because of this, many prudent investors will allocate a decent proportion of their portfolio towards gold.
The fact that gold’s price is difficult to manipulate is also a reason why many investors typically turn to gold during economic instability, especially when the stock market is turbulent, or when interest rates fall.
Yes, unlike some equity investments, gold doesn’t pay dividends. Nor is it the easiest of assets to store or offload in a hurry assuming you want to own physical bullion. Despite these drawbacks, however, there’s no doubt that there gold will always hold a great deal of attraction among investors, even if we are currently seeing an explosion in non-traditional, decentralised assets, such as cryptocurrency, NFTs, and the like.
What has happened to the gold price in 2023?
Now we’ve explained why gold is often attractive to investors, let’s take a look at how the precious metal has performed so far in 2023.
Gold began the year at £1,540 per ounce. Since then, the value of the precious metal has, perhaps surprisingly, been rather unsettled.
Between January 1 and February 28, the gold price fell from £1,540 to £1,498 – a 2.7% drop.
Yet come spring we saw the gold price begin to spike….
Between March 1 and April 30, gold rose 4.2% – hitting a year-high of £1,635 on April 13.
Sadly, however, this spring bounce would soon be reversed. By mid-summer, the price of an ounce of gold fell to £1,490 by July 14, rising to £1,534 in early August, before falling below the £1,500 mark once again.
At the time of writing on Thursday, August 24, 2023, one ounce of Gold now stands at £1,487 – that’s down 3.4% when compared to the beginning of the year. And let’s not forget, this fall comes in a year where there’s been real fears of global financial turmoil. So, all in all, 2023 hasn’t been great for gold by any means and it can certainly be concluded that the asset has underperformed.
Is gold about to go higher?
While gold has had a disappointing 2023 so far, to say the least, there’s a chance the precious metal could soon experience a change of fortunes.
While it can be said that gold hasn’t necessarily held on to its reputation for being a reliable asset during times of economic uncertainty in the current year, we shouldn’t forget that this is only a rule of thumb. In other words, no one can reasonably expect the gold price to climb each and every year the global economy encounters some wobbles.
However, over time, there is real evidence that gold generally performs strongly when compared to other assets during times of high inflation and economic struggles.
This means if you’re concerned about the direction of the global economy right now then you may be tempted to load up on gold considering its price is now lower than it was in January.
Two reasons why gold could go higher
Here are two good reasons why gold may go higher during the rest of 2023 (and beyond)….
1. The government could turn on the spending taps (again). Amid ongoing pressure to spend public money on vote-winning policies, there’s a chance the government could be tempted to turn on the spending taps once again.
With higher public debt, this could further water down the pound and cause another spike in inflation. This, in turn, could drive up the value of gold as investors clamour to dump their cash holdings. After all, who would want to hold sterling in an environment where its value is plummeting?
While you may feel increasing public spending would be an irresponsible thing to do right now considering the UK’s current battle with inflation, we shouldn’t forget that there’s a general election happening next year (possibly 2025 if it runs into January). As we know, in a run up to the ballot box we often a see short-term policies prioritised over long-term policies for obvious reasons.
2. A global recession. Forget the UK government for a moment. If the global economy has a nightmare in the coming months, then there’s every chance the UK and other countries will fall into a recession. Germany is already in recession of course, despite typically being considered one of Europe’s ‘economic powerhouses’.
During a recession, the prospects for global organisations will typically turn negative, which is why the value of equities also tends to fall. And because of all this, hard, safe assets such as gold will often rise in value. So if you believe the economy will suffer in the near future, you may be tempted to stock up on gold now.
How can you invest in gold?
If you want exposure to gold in your portfolio, there are a few ways you can go about it.
- Buy the physical commodity. To buy actual gold, you can use the services of a gold bullion company. It’s the most traditional way of buying the asset, though it’s important to bear in mind that you’ll be responsible for cost of security and storage.
- Buy a gold exchange-traded commodity (ETC). If you buy a gold ETC you won’t own the physical commodity. Instead, your investment tracks the price of gold. This means you’ll get all the benefits of owning gold, without the burden of having to store or secure your asset.
- Invest in gold through a digital currency. If you don’t want to buy physical bullion or a gold ETC, then you’ve also the option of gaining exposure to gold through a digital currency. If you wish to learn more about this way of investing in gold, do take the time to read our review of TallyMoney which is a company allows investors to own gold in a similar way to holding cash.
Looking for other ways to gain exposure to gold? Take a look at our guide to saving and investing in solid gold.
Disclaimer & Investing Newsletter:
Are you keen to learn more about investing? Why not sign up to the fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.
Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.
MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
What’s the deal with BRICS adopting a gold-based currency? I keep reading about this and expecting gold to explode in price. Surely if China and much of the developing world starts buying up gold to trade between each other, the price of gold should be skyrocketing in anticipation?
Great article Jasmine. No waffle…easy to understand. Plain english, the way it should be. Keep it up!