Three charts that show you're paying too much for gold

Telegraph

a day ago

Investors are piling into gold as market volatility drives the price higher. They may, however, be overpaying.
New analysis shows the precious metal has never been so expensive. Unlike other investments, gold produces no income, and its industrial uses are limited, which makes it difficult to assess its 'fair value'.
But Russ Mould, of stockbroker AJ Bell, said one crude way of doing so is to measure how much metal a pay packet can buy. He explains: 'If bullion moves beyond the reach of the worker, that could at least crimp jewellery demand and one source of incremental buying.'
By this measure, gold is at its most expensive level on record. Today, a blue collar worker in the US would have to work for 105 hours to buy one ounce of gold, according to AJ Bell's analysis of US Federal Reserve data.
This compares to just 12 hours in the early 1970s, before president Richard Nixon broke up the Bretton Woods agreement that pegged the US dollar to the precious metal.
Even when the price of gold spiked in the 1980s, one ounce peaked at just under 99 hours of earnings.
Mr Mould said: 'The current score of 105 hours could be seen as ominous for gold affordability, since the best cure for high prices is high prices – they stoke supply, depress demand, prompt searches for substitutes, or all three.'
Gold is also far more expensive compared to other commodities than it has been in the past.
Since 1970, one ounce of gold has bought an average of 17 to 18 barrels of oil, but today it would buy 49 barrels, while one ounce of gold would buy 91 ounces of silver today, up from an average of 60.
Since 1976, gold and platinum prices have been equally matched. But today, one ounce of gold buys 2.4 ounces of platinum, despite a recent surge in the price of platinum.
Gold is a go-to asset during times of economic turmoil thanks to its reputation as a store of value. The price hit a record high of over £2,500 per Troy ounce in April, as investors sought safe havens from market volatility.
Investors are usually advised against buying when prices are at the top, but in the case of gold, it seems newcomers have been unable to resist.
In the second quarter of the year, UK buyers of the precious metal outnumbered sellers by the widest margin in four years, according to precious metals marketplace, BullionVault.
Adrian Ash, of BullionVault, said: 'After taking profit on this year's earlier surge in prices, UK investors are now buying into gold's bull market.
'They're joining central banks and Asian wealth managers in building their holdings as the geopolitical shock of Trump's return to the White House persists and the UK's economic gloom worsens under Labour.'
Some experts believe gold can only rise further because of geopolitical instability and inflationary pressures, but others are more apprehensive.
Jock Henderson, investment analyst at Capital Gearing Asset Management, said the firm was 'cautious' about being overly exposed at current prices. The investment trust Capital Gearing has only 1pc in gold, despite its defensive positioning.
Mr Henderson said: 'While gold investors have been rewarded for holding gold, there are complicated underlying dynamics which make its fundamental value hard to determine.'
Advisers generally recommend that investors should not hold more than 10pc in gold.
Over time, the allocations in your portfolio typically drift in favour of the highest-performing asset, so some investors may need to trim their gold exposure in order to reduce volatility across their investments.