Analysis: Can gold regain its shine?

The gold spot price fell to $1,074 an ounce on November 12, the lowest level since February 2010, according to trading platform BullionVault.

Investors are now asking, with one eye on a potential interest rate rise in the US next month, whether the yellow metal’s value could drop below $1,000.

Gold has already almost halved in value since reaching an all-time high of $1,921 in late 2011, with a lack of inflation and slump in demand from Asian buyers among the factors blamed.

John Chatfeild-Roberts, head of Jupiter’s Merlin multi-manager team, retains a small allocation to gold within his portfolios via ETF Securities’ Physical Gold exchange-traded fund.

The manager acknowledged he had previously underestimated the extent to which the price of the metal had been driven by “Chinese demand, both collectively and individually” and remains relatively downbeat on its prospects.

However, it is the expectation that the US Federal Reserve is about to hike rates for the first time in nine years which has sparked a renewed outbreak of negativity among other investors.

Gold typically has an inverse relationship to the US dollar, and the currency has continued to strengthen this month as investors price in a December hike.

That has added to the misery for gold funds, given their focus on mining companies which tend to underperform at tough times for the metal.

Year to date to November 18, for example, BlackRock’s Gold & General and Investec’s Global Gold fund have each lost more than 20 per cent. The last month in particular has taken its toll: both are down over 15 per cent during this period, according to FE Analytics.

But with the spot price set to post its fourth consecutive annual decline, having dropped 9 per cent year to date, some have started to take another look.

Wealth manager Tilney Bestinvest has just taken a small position in the precious metal for the very first time in its Oeic range of multi-asset funds.

Managing director Jason Hollands said the move was down to the fact that the company feels central banks may be losing control of the macroeconomic backdrop.

Mr Hollands said: “After years of quantitative easing and low interest rates, the global economy is facing some very tough headwinds. Growth is anaemic across the world generally. Central bankers now have nothing left in their armoury, so we have taken a very small amount as an insurance policy.”

A long-term time horizon may be needed. Justin Modray, director at Candid Financial Advice, is not too optimistic, at least in the short term, given that “fickle investor demand” has largely been influencing the gold price in recent years.

Modray said: “It could go under $1,000 an ounce but equally, if markets and sentiment turn negative, the price could rise once again. For investors with a 10-to-20-year time horizon, it could be quite a good investment, given the growth and potential demand for its use from emerging markets as they expand.”

Gold’s status as a safe-haven asset has been tarnished in recent months, too: Jim Wood-Smith, Hawksmoor’s head of research, said in October that the rise of ETFs providing exposure to the metal had increased price volatility and removed its ability to protect against worst-case scenarios.

The spot price did witness a brief uptick on the first trading day following the Paris terrorist attacks last week, however, and its potential ability to insulate against economic shocks is still valued by some.

Hargreaves Lansdown research director Mark Dampier believes that despite all the negativity, “gold may well have its day yet”.

Observing the ultra-low interest rates that continue to define many of the world’s most mature economies, Mr Dampier noted that these countries are still in the midst of a “massive financial experiment”.

He added: “I still think we are only half to three-quarters of the way through the financial crisis. Nobody knows how it is going to end, and it could end badly. If it does, the market could very well see gold come flying back.”