Record high for gold - here's why you shouldn't invest.

 

Gold is in the news this week after reaching a record high price.

 

Nervous investors fleeing to safety as political tensions between the US and China rise, and ongoing concerns about the global Covid-19 pandemic, seems to be behind the price rise.

 

The spot price of gold rose to reach $1,944.92 an ounce on Monday.

 

The new high price for gold means the precious metal has risen in value this year, so far, by 28%.

 

But gold probably doesn't have a place in your investment portfolio. Here's why.

 

Gold is not an income-producing asset, so it fails to meet the definition of an investment for most investors. Instead, those who buy and sell gold speculate the demand will drive prices higher.

 

Demand for gold tends to rise during turbulent economic times, pushing up the price accordingly.

 

There are also significant costs associated with trading gold.

 

Trading in gold involves a big spread between the price at which you buy and the price at which you sell.

 

If you buy gold as a physical investment, you need to cover the cost of insurance and storage.

 

And buying gold as an electronic record, for example via an Exchange Traded Commodity (ETC) might not give you the certainty and peace of mind you crave from such an investment.

 

In the case of a global economic collapse, holding a series of noughts and zeros on a computer screen is unlikely to give you much solace.

 

Because gold is typically traded in US dollars, you need to consider the impact of currency fluctuations on your investment. Currency can move against you, as well as in your favour, adding to the volatility that comes with investing in gold.

 

As an investor with a well-diversified portfolio of different investments, there's a good chance you already have indirect exposure to gold through your holdings in mining companies, which make up a chunk of the FTSE 100 index.

 

Investing separately in gold could result in overexposure, at a time when the price has already risen sharply over a short period of time.

 

And of course, the price of the yellow metal is notoriously volatile. When an investment rises in value by nearly a third in the space of six months, it's a good reminder that what goes up can also come down - just as sharply.

 

Despite gold hitting the headlines for its strong performance, investors should tread carefully before getting mixed up in an asset that can fall in value as well as plummet.

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