The gold price has crashed by 14.63 percent in the last six months to $1,643 an ounce. That is almost 20 percent below the all-time high of $2,034 it hit in August 2020, at the height of the Covid pandemic.
Gold is supposed to shine in tough times like these, yet the reverse has happened in a major blow for investors.
The precious metal has been a safe haven for more than 4,000 years and normally investors would be racing to buy it in times like these.
So what has gone wrong?
High inflation and geopolitical unrest should be the ideal environment for gold, said Aegon investment manager Robert-Jan van der Mark.
“Yet it has failed to capture any upside, leading investors to question its historical role in portfolios.”
Gold has been replaced as a safe haven by the US dollar, with the world’s reserve currency rocketing this year.
Investors are racing to buy dollar-denominated assets to secure a better return as the US Federal Reserve turns hawkish and repeatedly hikes interest rates.
Gold is priced in dollars, and the strong dollar makes it more expensive for overseas buyers with other currencies.
Van der Mark said that globally, more than 50 percent of demand for gold comes from buyers in China and India.
“The strong appreciation of the US dollar has served as a headwind for them.”
When inflation raged in the 1970s, gold underperformed at first, van der Mark said. “Only when the dollar started depreciating did gold surge in price. It needs to fade before gold can start to shine again.”
“Gold isn’t working,” said David Henry, investment manager at Quilter Cheviot. “This year’s rampant inflation, geopolitical turmoil, recession fears and rock bottom sentiment should have been the ideal environment.”
Gold’s lacklustre performance is a “head scratcher”, he said. “In the inflation-wracked 1970s, gold was the best performing asset class, appreciating more than 10 times in dollar terms.”
That’s when it won its reputation as an inflation hedge, but the truth is not so straightforward, Mr Henry added.
When inflation picked up both in the late 1980s and late 1990s, the gold price did not rise to match.
Yet it did act as a safe haven when markets crashed after the 2008 financial crisis, and again in July 2011, when the European single currency seemed on the brink of collapse.
That is not the case today.
Henry said the main reason gold has faded is that it generates zero income at a time when interest rates are rising.
That makes it less appealing as investors can get a higher yield from rival safe haven assets bonds and cash.
“In this environment, the relative attractiveness of a lump of shiny metal which does not pay you anything diminishes,” Mr Henry says.
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Gold is also less attractive than shares, which continue to pay dividends even when stock markets fall.
The lack of income makes gold hard to value. “Valuing a gold bar can be like playing poker without looking at your cards. It is a struggle to know what the odds of success are.”
Fawad Razaqzada, market analyst at City Index, said gold may have further to fall as the Fed is expected to hike rates several more times.
“Gold costs money to store, making it even less appealing from an investment point of view.”
Most experts believe gold will recover and shine, but only after interest rates have stopped rising and the US dollar falls in value.
Some could be tempted to invest at today’s low price, say, through an exchange traded fund (ETF) investing in physical gold, such as the SPDR Gold Shares ETF and iShares Gold Trust ETF.
Interactive Investor head of investment Victoria Scholar said: “Gold still has a place in a balanced portfolio containing shares, cash, bonds, property and commodities.”