Gold bullion savings app TallyMoney has reported a 20 percent increase in downloads since PM Rishi Sunak’s shock election announcement, as Britons seek a safe home for their money. Demand for gold tends to rise in troubled political and economic times, and there is plenty to worry about today.
The gold price has climbed throughout the millennium, recently hitting an all-time high of $2,449.89 (£1,932) an ounce.
The dot-com crash in 2000, 9/11 terror attacks, 2008 financial crisis, Covid pandemic and Vladimir Putin’s invasion of Ukraine have all driven up demand.
Many investors have lost faith in “fiat” paper currencies as inflation and central banker money printing debases their value.
In troubled times, gold shines.
The precious metal has delivered an average return of 10.56 percent a year since the turn of the century, giving a total return of 697 percent. It has smashed the returns on rival safe havens such as cash and bonds.
Rising US-China tensions, the US presidential election and the collapse of the Conservative Party have combined to drive gold sales in the UK and beyond.
TallyMoney chief executive Cameron Parry said with the Tories set for wipeout, thousands of savers are seeking the stability that gold potentially brings.
Yet political uncertainty isn’t the only factor driving the gold price. The precious metal has one big disadvantage as an investment. It doesn’t pay any interest.
That makes it less attractive today, when savers can get up to five percent from an easy account cash savings account.
However, the Bank of England is expected to start cutting base rates in August or September, with more cuts likely to follow.
Best buy savings rates are already falling in anticipation, Parry said.
Moneyfacts figures show that easy access savings rates fell at the fast rate in nearly four years in April, with the average account now paying 3.11 percent.
Parry said this is likely to fall further as rate cuts loom closer, which increases the relative appeal of gold.
“While the gold price can fluctuate from day to day, over time it tends to move steadily upwards. It has risen 19 percent in the past year alone, six times more than the interest on a typical savings account.”
Gold miners now have to dig deeper to access quality gold reserves, and this should squeeze supply and support the price, said Rick Kanda, managing director of the Gold Bullion Company. “The easy gold has already been mined. Increased challenges, dangers, costs and time should result in higher prices.”
While many invest in gold by purchasing jewellery, bars and coins, these come with storage and security risks, and there are easier and cheaper options.
Many favour low-cost exchange traded funds (ETFs) such as iShares Gold Trust or SPDR Gold Shares, that simply track the gold price.
These can be bought inside a stocks and shares Isa on an investment platform, with all capital gains free of tax.
TallyMoney deposits are held as real gold, stored securely in a Swiss vault, but savers can withdraw or spend their money for free from an ATM or spend via debit card, while benefiting from any increase in the gold price.
Despite gold’s reputation as a safe haven, the price can be highly volatile. If political and economic tensions ease, the price could drop, hitting the value of your holdings. It has retreated from its all-time high, and currently trades at around $2,311 an ounce.
In contrast to cash, your capital as at risk.
Also, gold will not suit savers who need to generate income from their savings. Investors will only make money if the gold price continues to climb.
Gold has few industrial uses, which means the price is driven almost entirely by sentiment. This could shift if economic political tensions ease.
Yet there seems a little prospect of that happening today, as a bloody war rages in Ukraine, Chinese premier Xi Jinping menaces Taiwan and Donald Trump steals a march in the US presidential election.
Most advisers recommend holding no more than five to 10 percent of your total savings in the precious metal, for diversification.
The old investment rule applies, do not put all your eggs in one basket. That includes golden ones.