The price of gold has rallied 18.11 per cent in sterling terms since the result of EU referendum was confirmed, according to data from FE Analytics, which shows the precious metal has risen some 40 per cent since the start of the year. 
Following a very poor period for gold between 2011 and late-2015 owing to a lack of inflationary impulses and a desire among investors for income-producing assets, the yellow metal has come massively back into favour over recent months.
First and foremost, fears of a Chinese hard landing sparked demand for gold bullion, then the genuine concern that the world central bankers had run out of firepower to support economic growth further fuelled the rally.
More recently, however, it has been the UK’s future relationship with the EU which has pushed up the price of gold.
Performance of index in 2016
Source: FE Analytics
As the graph above shows, last week’s surprise Brexit result has led to a significant spike in the gold price in sterling terms.
The reasons for this have been well documented, as given sterling initially fell to its lowest level relative to the US dollar since 1985 and fears grew that the result would send the UK towards a recession, investors rushed for assets that offer safe-haven characteristics.
This also meant that gold mining funds, such as MFM Junior Gold, made as much as 12 per cent on Friday thanks to the higher beta nature of the asset class.
Many investors will continue to avoid gold bullion, though, given its price is a purely function of demand rather than other fundamentals and can therefore be seen as too much of a speculative bet on macro factors.
Indeed, despite the huge amounts of Brexit-induced uncertainty (both political and economic) dominating the press, gold is down 3 per cent in sterling terms so far today.
However, Incrementum AG’s Ronald-Peter Stoeferle and Mark J. Valek believe investors should be taking big bets on gold bullion because of the falling credibility levels of the world’s central banks. The wealth managers predict the gold price to hit $2,300 by June 2018, which would represent a 75 per cent rally from here.
“We went far out on a limb last year by projecting a price target of $2,300 for June 2018 amidst a pronounced bear market. The first step in this direction appears to have been taken. The commodity sector, as well as gold, seems to have formed a bottom. Early this year gold celebrated an impressive comeback, exhibiting strong vital signs,” Stoeferle and Valek said.
They argue that while $2,300 seems a long way off (gold stands at $1,315 at the time of writing), there are signs that scepticism is rising among investors thanks to poor communication from the US Federal Reserve.
“A significant downturn in economic growth, followed by a renewed stimulus programme including even more extreme measures would increase uncertainty further,” Stoeferle and Valek continued.
“In this case it would have to be expected that the gold price, commodity prices and also price inflation, would rise. In our opinion, this or similar scenarios have a high probability of eventuating within the coming 24 months, and we are therefore sticking with our price target of $2,300 by June 2018.”
“The current combination of obvious over-indebtedness, expansive fiscal and monetary policy and the unrelenting determination of central banks to generate price inflation, continue to represent a stable foundation for further advances in the gold price.”
A 75 per cent rally in gold is not unheard of by any stretch of the imagination but it would mean a new record high for the precious metal, which last peaked at $1,896 in September 2011.
Performance of index since January 2000
Source: FE Analytics
Ben Conway, fund manager at Hawksmoor, says investors should never buy gold in the hope of making quick and easy gains, but argues that given what mayhem the EU referendum result could produce along with other macroeconomic concerns, those who don’t own it should consider gaining exposure now.
“Should sterling investors buy now? It depends if you hold any. For us, gold is still the best way to express a view that the central banks have vastly diminished firepower to impact real economies,” Conway said.
“They need ever greater amounts of stimulus to affect a change. Clearly the main impact is on financial assets, but this has a limited knock-on effect for the real economy i.e. economic activity such as lending to corporates, consumption by individuals.”
He says another reason to buy gold today is the fact that most major economies are aiming for a weaker currency to try and bolster economic growth.
“Gold cannot be debased. It is far scarcer than fiat currencies that can easily be debased. It is thus a very sensible asset to hold in the current environment,” he said.
“With there being no obvious end in sight to any of the problems that have created the current status quo, I would suggest that investors who don’t hold gold should still be buying. The difficulty with gold is that there is no real way to assess its fair value.”
“But we would expect it to continue performing well over the next three to five years given the deep structural nature of the developed world’s problems and the policy settings governments and central banks have.”
Ben Willis, head of research at Whitechurch, says he isn’t increasing his exposure to gold bullion.
“We feel it is a speculative asset class. It’s seen as a safe haven during periods of volatility, but that can reverse quickly,” Willis said.
“During periods of uncertainty investors go for ‘stores of value’, which gold can be, and we’ve seen in the past that that when panic sets in government bonds and gold rally and I can certainly see why people are attracted to it at the moment as that uncertainty isn’t going away anytime soon.”
That being said, while Willis doesn’t hold gold ETFs across his portfolio, he does use multi-asset managers that have exposure to gold bullion within their funds. He says targeting those sorts of portfolios is a far less risky approach than placing large bets on the direction on the price of a precious metal individually.
Some of the multi asset funds with the highest weighting to gold include CF Odey Opus, Investec Cautious Managed and Troy Trojan.
Multi asset funds with highest weighting to gold
Source: FE Analytics
“I can see why people hold gold within a diversified portfolio, but we just think it is a speculative trade driven by sentiment – which we do not think is a sound long-term investment strategy,” Willis added.