In an era of higher interest rates, it makes no logical sense for gold to perform well. After all, why own an asset that offers no return (other than speculative capital gains) when you can make circa 5% in a bank account?
Yet gold may well have been a saviour for some portfolios over the past few years, with the precious metal quietly on an incredibly strong run.
Since 2021, when the S&P GSCI Gold Spot price index slipped back 3.4%, it has tracked consistently higher, gaining 11.8% in 2022, 6.5% and so far this year it has enjoyed its biggest rise, up 15.2% (in sterling terms).
Gold has sparkled thanks to its place as a safe haven. With plenty of election uncertainty in 2024, as well as geopolitical instability, wars and economic jitters, there are many reasons why investors might be looking to be more defensive.
Perhaps Labour’s victory – heralded as a positive for the UK after years of dysfunctional Conservative rule – may also have been good for the metal. As one expert explained this week, change can be scary, and a new government can often be a boost for the gold price. Gold rallied after Tony Blair was elected in 1997 too.
Gold is also a direct play on the US dollar, which shot higher versus the pound during former prime minister Liz Truss’ ill-fated administration in September 2022, but has softened around 17% since.
For these reasons, gold set its third consecutive quarter-average record at £1,853 and also set new month- and quarter-end highs at £1,845 on the last day of June.
So can the yellow metal continue its unheralded move higher?
Data from BullionVault earlier this month suggests that fresh highs last month did nothing to dissuade investors, who continue to hold the precious metal despite its price.
Demand was particularly positive in France in the lead up to the country’s general election, when fears of Marine Le Pen and the far right movement gaining a majority were high.
The number of first-time bullion buyers in Europe's third largest economy also set its highest quarterly total in three years amid the political upheaval of the snap election called by president Macron.
This did not happen, but the lack of a majority for either side could cause big blockages in the government. Even so, the fractious parliament represents uncertainty, which should be to gold’s benefit.
Adrian Ash, director of research at BullionVault, said earlier this month: “After finishing the first half of 2024 at new quarterly records, the price of gold looks set to continue its underlying uptrend as the UK and US follow France to the polls. Political uncertainty is adding to gold's appeal as investment insurance. Longer term, the fiscal and monetary backdrop is supportive for gold prices too.”
With the US election still to come – and plenty of question marks over issues such as president Joe Biden’s health and former president Donald Trump’s resurgence – gold may continue ticking higher for the next few months at least.