The gold bounce: more to come, or sell now

old has experienced a major rally this year, but opinions are divided about whether there is more to come.

The past few years have not been smooth sailing for those who hold gold. From a peak of about $1,900 an ounce in 2011 – after a decade of near constant growth – the price sank to just over $1,000 late last year.

But since January gold has rebounded, surging back past $1,300 an ounce. The eight best-performing funds over the past year are now all gold funds, according to data service FE Trustnet.

Investors have piled into gold – seen as an insurance policy against stock market volatility and the threat of inflation – in the face of poor global growth, including fears over the slowdown in China and the EU referendum.

The question facing them now is whether there is more to come, or if it’s time to take profits and run.

Experts are split on the issue, particularly as the price of gold reacts heavily to investor sentiment.

Nick Peters, a multi-asset portfolio manager at Fidelity, has recently bought gold for two of his total return funds.

He said: “Gold has benefited just as much from an easing in headwinds as any support from jittery investors. With yields [on other assets] expected to remain lower for longer, the traditional drawback of gold, that it yields nothing, is less of an issue.

“Although we have seen a significant rally in gold, I think investors should still consider an allocation to the precious metal. Gold can function as a safe haven during times of market volatility and provide strong countervailing returns to shares.”

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However, he added that some believed gold would only perform if inflation is higher than yields, “and we’re not quite there at present”.

Others are less optimistic about there being significant profits to come, mainly because of opaque understanding of why gold is currently priced as it is.

Unlike many commodities, gold is sentiment driven, in that its price doesn’t necessarily correlate to supply and demand. This makes it complicated to discern whether the price at any one time is fair.

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Charlie Morris, a fund manager at Newscape Capital and former head of absolute return at HSBC, said: “If interest rates rise – and they will – then gold will fall. Only higher inflation will save it.”

He said he was generally neutral on gold but with a negative short-term view. He said the chance of major gains was slim, although the price ought to stay above the previous low of $1,050.

Mr Morris also highlighted an apparent disconnect between the current price and interest in gold investment.