As the value of gold approaches an all-time record high, new analysis reveals the gulf between the precious metal and some of the most popular funds favoured by ISA investors.
Gold prices soared 17% in 2022, and have continued to climb since the start of the New Year. Last weekend gold hit £1,573.07 per ounce, its second highest level ever. It was briefly higher during the pandemic in August 2020.
Gold has kicked off the year on a positive note as the precious metal staged an impressive rally in the first week of trading, extending its climb from the latter months of last year. Gold investors have significantly benefitted from a weakening dollar which is pushing gold prices higher as the Fed slows interest rate hikes.
The continuing momentum into the first week of trading in 2023 will fill precious metals investors with optimism for the year ahead particularly those seeking to hedge and diversify their investment portfolios in the wake of warnings from the IMF that a third of the world’s economies would be in recession this year. Historically, a mild recession has been positive for gold prices but the jury is out on whether this will be the case in 2023 and if gold will live up to its ‘safe haven’ status.
By contrast, swooning stock markets left many ISA investors nursing heavy losses in 2022. Research by the gold bullion savings app TallyMoney revealed AJ Bell’s Adventurous fund was the only top-pick ISA fund to be in the black over the 12 months, delivering annual growth of just 2.4%. These modest gains are nearly 15% less than someone investing in gold would have enjoyed over the same period.
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Returns were far worse on many of Britain’s other leading investment platforms. Bottom of the pile was the hugely popular Baillie Gifford American fund, which crashed amid a meltdown in US tech stocks. The fund fell 44.7% against the pound, putting it more than 61% behind the growth enjoyed by gold investors.
Other tech-heavy funds suffered a similar fate as investors took fright. Legal & General’s Global Technology Index Trust and Vanguard’s S&P 500 ETF fell 42% and 35% respectively against gold.
Fundsmith Equity – Interactive Investor’s most popular fund – was down 26% against gold, while Vanguard’s flagship Lifestyle Strategy 80 fund tumbled 23%.
The dismal showing came as stock markets endured their worst year since the global financial crisis of 2008.
TallyMoney CEO Cameron Parry explained: “Gold has been a safe haven investment for millennia, and it more than lived up to its reputation in 2022 as stock markets were rocked by abrupt interest rate rises, the energy crisis and war in Ukraine; and while the value of conventional money was eroded by surging inflation. If you invested in either a cash or a stocks and shares isa in 2022, the chances are your nest egg lost value in real terms. But with gold prices approaching a record high, those who invested in the most reliable asset of all – real gold – will be in a great position.”
Parry said that as the spring ‘ISA season’ approaches, it’s worth thinking differently. “Over the past 20 years gold prices have soared by 627% against sterling, while the FTSE100 has gained just 110%,” he said.
Andrew Dickey, Precious Metals Investment Analyst at The Royal Mint in the UK was also upbeat on gold, and has seen many more smaller investors increasing their exposure to physical gold: “Our own data reveals a significant increase in smaller scale gold investors who are dipping their toes into precious metals markets by investing in the yellow metal,” he said.
The Royal Mint reported that both 1g and 5g gold bars proved particularly popular in the lead up to Christmas with those lucky enough to receive a gift of gold benefitting from an early 2023 jump in the value of their holdings. Gold would need to rise just another 10% to hit the all-time high of $2,067.15 recorded by the London Bullion Market Association on 6th August 2020.
In early 2023 trading, gold market professionals will be keeping a close eye on upcoming GDP and inflation data across developed markets as well as other prominent economic indicators. Central bank signals about future policy in the weeks ahead also have the potential to further impact how the precious metal will perform during the first few months of the year.