As the gold price rallies, should I dump FTSE 100 stocks?

Can the gold price rally continue?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The gold price has been on the rise over the past month, up by almost 15%. Interestingly, this explains most of the 18% increase seen over the past year. No surprises here. Historically, the yellow metal is considered the best hedge against all other investments, including FTSE 100 stocks, when there is either real or perceived danger that things could really go south. The war may have started between Russia and Ukraine, but its economic repercussions can already be felt around the world as inflation rises further because of runaway fuel prices. 

Why the gold price could come off

This is in no way a signal urging investors to press the panic button, but an assessment of the situation as it exists right now. I mean, it is theoretically possible that peace may be struck between the two countries, sanctions on Russia could be removed, and oil and gas prices could subside. This would logically lead to a more optimistic outlook on the global economy and the stock markets. And less insecurity could deflate gold prices.

Why it could stay high 

On the other hand, it is also possible that we see a prolonged war that continues to create challenges. Europe, for instance, is heavily dependent on Russian gas. This creates both economic and ethical challenges for much of the continent. As gas prices continue to rise, inflation will rise, further weakening European economies while at the same time making Russia richer. 

This also undermines the efforts of governments around the world to discourage support to the Russian government, including the UK. In fact, they wind up inevitably supporting the country, because alternatives to the country’s gas supplies are not that easy to find, as Germany has been reiterating recently. 

What could happen to FTSE 100 stocks

This in turn could continue to keep the stock markets sluggish. The FTSE 100 has dipped since the start of the war, and has not gone back to the highs of early 2022, when it was a heartbeat away from 7,700. But it could be good for the gold price. Not necessarily gold stocks, to be sure. One of my gold-related investments is in the FTSE 100 Russian miner Polymetal International. I do not even want to get started on how badly it has been doing in the past days!

What I’d do now

So, to answer the question asked in the title, I think there is a case for buying gold. As there always is. I have long been a believer that a small proportion of my investments should be in gold because it can be the safest asset in times like this. And if I can hold it in physical form (not my favourite idea), that is even better. But I am not about to dump stocks, either. I have been a stock market investor for a long time and it has held me in pretty good stead. 

The balance of probability indicates to me that while we are in a period of rising risk, there is also a good chance that we can come out of it relatively unscathed. So, I am buying solid FTSE 100 stocks while they are still low, but also increasing my gold holdings. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns Polymetal International. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

I bought 1,779 Legal & General shares 2 years ago – see how much dividend income I’ve got since

Harvey Jones holds Legal & General shares and has been pretty underwhelmed by their performance so far. The dividend is…

Read more »

Middle-aged black male working at home desk
Investing Articles

Is the FTSE 100 set to soar? Here are 3 ways to aim to cash in

My outlook for the FTSE 100 is definitely brightening as we get deeper into 2025. How can we make the…

Read more »

Investing Articles

£10k invested in NatWest shares on the ‘Liberation Day’ dip is today worth…

Harvey Jones looks at how NatWest shares have been knocked off course during recent market turbulence, but are now bouncing…

Read more »

Tariffs and Global Economic Supply Chains
US Stock

£5,000 invested in Nvidia stock just before the tariff news is now worth…

Jon Smith talks through the erratic movements in Nvidia stock over the past six weeks and reveals where an investor…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

3 high-yield passive income stocks to consider buying right now

These stocks with big dividend yields look very tempting. Passive income investors could do well to consider taking the plunge.

Read more »

Handsome young non-binary androgynous guy, wearing make up, chatting on his smartphone, carrying shopping bags.
Investing Articles

Is a motley collection of businesses holding back this FTSE 100 stock?

Andrew Mackie explains why he's remained loyal to this FTSE 100 stock despite several of its businesses continuing to struggle…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

3 top growth stocks driving wealth in my Stocks and Shares ISA

Our writer shines a light on a trio of outperforming growth firms in his Stocks and Shares ISA portfolio. They're…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s where analysts expect the Lloyds share price to be a year from now

The Lloyds share price has fared well so far in 2025. But with some big issues on the horizon, can…

Read more »