We write a lot about S&P/ASX 200 Index (ASX: XJO) gold stocks at the Motley Fool, but what about buying physical gold as an investment?
As you're likely aware, the yellow metal has been shining brightly over the past 12 months. Among other factors, the gold price has enjoyed tailwinds from its classic haven status amid rising global tensions and uncertainties, as well as robust central bank buying.
Indeed, if you bought gold as an investment a year ago, you'll have outperformed most global stock markets.
At time of writing, the gold price stands at US$2,781.26. This is just off its all-time high of US$2,781.90 notched earlier today. And it sees the gold price up 39.3% since 12 months ago when that same ounce was worth a 'mere' US$1,996.10.
That handily outperforms the 21.2% annual gain posted by the ASX 200. And it almost matches the 41.2% 12-month gain achieved by the S&P/ASX All Ordinaries Gold Index (ASX: XGD).
Of course, that's all water under the bridge.
Looking ahead, should I still buy gold as an investment?
Is it too late to buy gold as an investment?
For some greater insight into this golden question, we defer to World Gold Council senior market strategist John Reade (courtesy of The Australian).
Read said there are many reasons to be optimistic about the case for buying gold as an investment over the longer term, but investors should be aware of some risks surrounding the upcoming US presidential election.
Specifically, the gold price should get greater support if either the Democrats or the Republicans take control of the White House, the Senate and the House of Representatives.
"If you look at what happens when either party wins everything, a so-called sweep, deficits tend to be bigger because the President can get through his agenda," Reade said.
He added:
I think what we've seen in October – when the [US] dollar has been strong, US interest rates have been going up and gold has been going up – is people pricing in a more extreme result, and that more extreme result … is probably Trump wins everything.
But if Harris wins everything, it's not necessarily bad for gold either. There is some risk here – because of positioning, because of how gold has moved this year – that if you see one party or the other win, but not get control of Congress, you get some profit taking…
If you do get a Republican sweep, you will probably have tariffs, you'll probably have higher inflation, you'll probably have lower growth and you'll probably have more weaponisation of the US dollar and the financial system which would be good for gold.
Now gold, which pays no yield itself, tends to perform better in a low or falling interest rate environment. And with bullion priced in US dollars, it also tends to do better amid a weaker greenback.
"Normally, you expect gold to do poorly when the dollar is strong and when interest rates are rising, but gold didn't correct to the extent, or at all actually, that people were expecting," Reade said.
As for why people who bought gold as an investment have outpaced most stock market returns despite a strong US dollar and high interest rates, Reade said near-record levels of central bank purchases, driven by China, have helped drive the price higher.
And the People's Bank of China may not be done with its buying spree yet.
"They might want to buy an awful lot more," Reade said.
"So, the central bank story has been a big part of how gold has done well in a strong US dollar environment, in a high US interest rate environment," he added.
What else is supporting the gold price?
Another reason people who've been buying gold as an investment have been enjoying outsized gains is the strong demand from emerging markets.
According to Reade (quoted by The Australian):
I think the second thing that's that seems to have taken place over the last couple of years is that emerging market buyers of all types – not just central banks, but retail investors, jewellery investors, high-net-worth individuals – all types of buying of gold from emerging market investors who have displaced the relative importance of Western buyers of investment and speculative gold.
Now, if I were to buy gold as an investment after the 39% one-year run higher, I may not see the yellow metal continue to race into new record-high territory.
Reade noted that with the gold price leaping ahead so far without a correction there is "nothing that really screams to me '2026 all-time highs in the price of gold'."
Though, I might do well to take a page from Asian high-net-worth investors, who have been broadly investing in physical gold with an eye on the long term.
"They don't trade gold like retail investors or even institutional investors who are very much concerned about short-term performance; they think of generational wealth," Reade said.
