The gold price has shot up over the last year and as a result, investors are excited about the precious metal again. According to new data from the World Gold Council, global gold-backed exchange-traded funds (ETFs) hit record assets under management in September.
Can the gold price keep rising? Some City analysts certainly believe it can. Here’s a look at some recent gold price forecasts.
Could gold hit $2,000?
Citigroup Senior Commodities Strategist Aakash Doshi is one analyst that is bullish on the yellow metal. He thinks gold could hit $2,000 an ounce “at some point in the next year or two” – a rise of around 34% from the current price.
Doshi recently said that positive drivers for the gold price include lower-for-longer nominal and real interest rates, escalating global recession risks exacerbated by US-China trade tensions, heightened geopolitical rifts, rich equity and credit market valuations, and strong central bank and investor buying activity.
Interestingly, Doshi is not the only analyst to forecast a price of $2,000 or more for gold, as the table below shows.
Clearly, a number of analysts believe that there is considerable upside to the price of gold.
Should you buy gold for your investment portfolio on the back of these bullish forecasts?
Well, the answer to that question depends on both your financial goals and what you expect to happen to the global economy and stock markets in the years ahead.
Personally, as I recently outlined here, I think that having a little bit of exposure to gold could be sensible as a form of portfolio insurance. Investing in gold can be an effective way to diversify your portfolio because its price movements tend to be uncorrelated to the movements of other assets such as equities and bonds. So, if global stock markets were to decline, gold could provide some protection.
That said, I wouldn’t want to hold much more than around 5% of my total portfolio in gold. The main reason I say this is that gold doesn’t pay out any income, which means that it doesn’t enable you to compound your earnings over time (the key to building wealth). To profit from gold, you need its price to rise. And there’s no guarantee that this will happen.
Better investment strategy
In my view, stocks remain a far better long-term investment than gold.
With stocks, you can build a portfolio that pays you a regular income (through dividends) meaning you can compound your wealth over time by reinvesting your income. You can also potentially live off this dividend income in retirement without having to worry about selling a proportion of your portfolio. In addition, stocks have a brilliant track record over the long run – since 1899, the UK stock market has returned around 5% per year above inflation.
As part of a diversified portfolio, gold could definitely be worth considering. Yet when it comes to core investments for your portfolio, stocks are a better idea in my opinion.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.