While it’s often said that not everything that glitters is gold, investors might have a different perspective. Over the past year, the precious metal’s value has surged, driven by stock market fluctuations, geopolitical tensions, and escalating inflation. But is gold a prudent addition to your investment portfolio?
In the last 12 months, gold’s price has skyrocketed by 54 percent, reaching $4,685 per ounce (£3,462), and over the past five years, it has increased by an impressive 167 percent. This surge underscores gold’s reputation as a reliable store of wealth, especially during times of market instability or when conventional currencies falter. Many financial experts recommend considering gold as a form of ‘insurance policy’ for these reasons.
Back in 2025, the demand for gold spiked as central banks from countries like Brazil, China, and Turkey began purchasing the metal. Their goal was to diversify their reserves away from the declining US dollar, further propelling gold’s value.
However, the path of gold prices is not without its volatility. Following the escalation of conflict in the Middle East, the price of gold experienced a significant dip, falling by approximately 12 percent. This fluctuation highlights the potential risks involved in gold investment.
Due to these unpredictable swings, financial advisors generally recommend that gold should constitute no more than 10 percent of your investment portfolio. This cautious approach helps mitigate the risks associated with its price volatility while still allowing investors to benefit from its protective qualities against economic uncertainties.
For this reason, experts warn against putting more than 10 per cent of your portfolio in the asset.
Unlike cash in the bank or dividend-paying stocks, gold provides no income – the only way to profit is if the price rises
Unlike cash in the bank or dividend-paying stocks, gold provides no income – the only way to profit is if the price rises – so it tends to be less popular when interest rates are higher. The simplest way to invest is through an exchange-traded fund (ETF), which is a low-cost fund that tracks the price of gold. Choose a fund that is ‘physically backed’ because this means it actually owns the metal.
Dzmitry Lipski, from Interactive Investor, suggests the iShares Physical Gold ETC, which charges 0.12 per cent a year (about £1.20 per £1,000 invested). It has closely tracked the gold price, returning 167 per cent over five years.
You can also put your money in funds that invest in gold mining companies’ shares, but these can be riskier as the companies’ fortunes tend to fluctuate with the price of metal.
Lipski warns: ‘When the price of gold rises, miners’ margins can expand faster than the metal price, potentially amplifying returns. However, this works both ways, and mining stocks tend to be more volatile during downturns.’
He suggests BlackRock Gold and General, a highly rated fund with a long-established management team. It invests in Barrick Mining, which operates across South America and Africa, and Colorado-based Newmont Corporation. The fund has returned an impressive 183.4 per cent over five years. The Jupiter Gold & Silver fund spreads its investments away from just gold. Silver is a cheaper metal – in demand for its many uses from electric cars to semiconductor chips – but can be more volatile. Over one year its price is up 153 per cent to £37.80 an ounce.
The Jupiter fund’s top holdings include Toronto-based silver miner Discovery Silver and Fresnillo, one of the largest mining firms in the world. The fund is up 171.3 per cent over five years. Some investors might prefer the idea of owning physical gold. Rick Kanda, of The Gold Bullion Company, says: ‘When you buy physical gold, you own the metal outright. Most funds only provide exposure to the gold price, rather than genuine ownership.’
You can also put your money in funds that invest in gold mining companies’ shares, but these can be riskier
If you invest in physical gold, be sure to buy it from a legitimate source. Websites such as The British Numismatic Trade Association (BNTA) and the London Bullion Market Association (LBMA) list reputable dealers. Read reviews and be wary of deals that seem too good to be true.
Forget gold bars and start with coins, Kanda suggests. A key benefit is that certain coins are classed as currency, so any profit is not liable for capital gains tax. ‘They are also easier to sell in smaller, affordable increments,’ he adds.
Consider storage and insurance. Companies such as the Royal Mint allow buyers to keep gold in their vault – this is safer than having it at home but comes at a price. The Royal Mint charges 1 per cent of the value plus VAT. Bear in mind that, unlike a fund, gold bars may take time to sell and a dealer may take a slice of the profit.
The real question is: after such a strong run, has gold got further to climb? Lipski says: ‘Central bank buying, higher government debt levels and ongoing global tensions could be good for the gold price. But if inflation eases and interest rates stay higher, it could weaken.’
Kanda is optimistic about the outlook, he says: ‘JPMorgan’s research team has a target price of around $5,000 per ounce by the fourth quarter of 2026, with $6,000 viewed as a realistic possibility longer term.’
