Price of gold higher than ever - should you invest?

The price of gold has been steeply increasing to new heights since early March, as investors respond to tumultuous times by rushing to the age-old 'safe haven'.

Today, the price of gold sits at £1,918 per troy ounce, down from its peak last Friday of £1,929, but still at an all-time high.

The number of customers buying gold bullion directly from The Royal Mint in 2023/24 has also increased 170% in the last five years.  

Here, Which? finds out what’s behind the spike in the price of gold – and whether you should invest.

Please note: the content in this article is for information purposes only and does not constitute financial or investment advice.

Why is the price of gold so high?

Gold prices often reflect investors’ perception of the global economy, spiking at times of high inflation and recession fears.

Significant increases in the price of gold took place in the 1970s and from late 2007 to early 2012; both periods were marked by ‘stagflation’, where inflation is high and economic growth stagnant.

The price of gold also tends to increase in other times of panic. For example, there was a jump in its value as the Covid-19 pandemic hit in early 2020.

Victoria Hasler, head of fund research at Hargreaves Lansdown, says: ‘When the world starts to look scary, investors often turn to assets they perceive to be safe.

‘With a war escalating in the Middle East, at the same time as other ongoing conflicts around the world, global demand for gold from investors has risen. Combined with strong buying by central banks, the gold price has hit an all-time high.’

• Find out more: investing in gold explained 

What are the benefits of investing in gold?

As gold behaves differently to the stock market, having some of your overall investment portfolio put into gold will mean you’re better diversified. That way, if the stock market takes a hit, it won’t necessarily spell doom for all of your investments.

Over the long term, gold has also out-performed cash savings accounts. If you invested £1,000 in gold five years ago, it would be worth approximately £1,533 today, a 53% increase. However, it’s important to remember that the past is not a guaranteed indicator of the future.

If, at the same time, you’d put the same amount away in the five-year fixed account offering the best interest rate, you’d have £1,145 – a much smaller increase of close to 15%.

Unlike investing directly in shares, you can invest in bullion bars without paying any stamp duty.

• Find out more: how to balance your investment portfolio 

What are the downsides of investing in gold?

While investing in something tangible such as gold might feel like a safe bet, the market can be volatile and you risk being out of pocket if you're hoping for a quick profit.

Unlike shares in a company, the price of gold isn’t linked to any kind of performance or profit – instead it’s about supply and demand. Investors are currently keen on gold, but if it falls out of favour, your investment will take a significant hit.

Looking at the past five years, the performance of the US stock market has exceeded the returns of gold. If in 2019 you’d invested £1,000 in the UBS S&P 500 Index Fund, which tracks the performance of the 500 largest US public companies, you’d have £1,989 today, a nearly 99% increase. However, to reiterate, past performance will not necessarily repeat itself, so that's not to say the same will be true of the next five years too.

Nor do you get any dividend payments if you invest in gold, so won’t see any money back from your investment until you sell it.

If you’re interested in buying physical gold, you also run the risk of losing the value of your investment if you fail to properly store or insure it.

Gold mining also causes significant environmental damage – both through the energy required to carry it out and the damage caused at mining sites through mercury and other chemical pollution. 

• Find out more: how to invest: a beginner's guide 

How do you buy gold?

You can buy physical gold coins or bullion (the typical gold bars you might see), or as jewellery. 

It’s best to buy from a reputable seller to avoid scams – sovereign mints, such as the Royal Mint or the equivalent in other countries, are government regulated, so have the added benefit of their gold being legal tender.

If you buy a physical form of gold, you’ll need to factor in the costs to store and insure it if you want to preserve its value.

To avoid that hassle, you can invest in digital gold through the Royal Mint. This investment is backed by a portion of a gold bar held in its vault, but you have to pay a management fee of 0.5% of the market value on top of your initial investment.

You can also invest in an exchange-traded commodity (ETC) or exchange-traded fund (ETF) that tracks the price of gold. You can buy these through investment platforms and within a stocks and shares Isa, which would mean you don’t have to pay capital gains tax on any increases in its value.

You can invest in shares of gold mining companies as another way to benefit. However, there is a lag between gold prices rising and mining share prices – the FTSE gold miners index has actually declined 2% over the past year.

If you don’t want to go all in and invest in gold directly, you can also invest in funds that have some limited exposure to gold.

• Find out more: best investment platforms in the UK 2024 

How much does gold cost to buy?

The ‘price of gold’ we’ve discussed here (currently at £1,918) is different to what it would cost you to invest. This price is per troy ounce (a measurement reserved for precious metals) of gold in its unallocated form, which is gold bought from a bank but still kept there.

Allocated gold - which you physically buy and keep - is more expensive than the price of the metal, because it also covers production and design costs.

A 500g gold bullion cast bar from the Royal Mint will set you back £31,251.08; alternatively, a Britannia 1g gold bullion minted bar costs £92.19.

As of today, investing in the iShares Physical Gold ETC GBP would cost £37.30 - though this price fluctuates constantly throughout the day.