The yellow metal hit a record level four years ago - but has slid in value and is now at the lowest level in half a decade. What do wealth managers make of this and what should clients do?

It seems at times hard to believe that as little as four years ago the price of spot gold was threatening to surpass the $2,000 per ounce level, as investors fretted that Greece was going to be kicked out of the eurozone. Fears that central bank money-printing, aka quantitative easing, could trigger inflation, abounded.

Since then, a few forces have shifted: the US economy has expanded and the dollar has gained ground, which is typically negative for gold prices; the eurozone, despite the continuing Greek debt agonies, has gained momentum, albeit still at a relatively sluggish pace; China, typically a gold-hungry power and thought to be a large stockpiler of gold, has seen its economy decelerate, while India, under its new government, has enjoyed a post-election economic honeymoon (albeit with some caveats). All of these and other forces have led gold down from a 2011 record of over $1,900 per ounce to fall to a five-year low below $1,100 per ounce. These haven’t been easy times for advocates of the ultimate in “hard money”. And if the US Federal Reserve, and Bank of England, do pull the trigger and start pushing up interest rates, gold could be under more pressure.

Gold is the ultimate in “safe-haven” assets, at least traditionally, and wealth managers have been among the holders of the yellow metal. With the falls in its price, what do firms make of this, and the forces at work? Here is a selection of views.

Adrian Lowcock, head of investing, AXA Wealth
There are several reasons for the fall; the Chinese central bank purchases of gold have been much lower than expected. On Sunday night the US Comex Exchange saw a sharp rise in gold volumes; in four minutes $1.3 billion was traded and within seconds selling spread to the Chinese markets.

The Greek bailout negotiations and a 30 per cent fall in Chinese stock markets should have been cause for concern amongst investors resulting in a flight to safe-haven assets such as gold. However, investors have been quite relaxed about both events and have not sold off riskier assets such as equities and bonds. In addition gold has traditionally been seen as a hedge against inflation and a weaker US dollar. Neither inflation nor the US dollar has been an issue with the latter remaining strong and the former low.

In the short term gold could be volatile as investors digest the recent swings. However as the US economy continues its recovery and looks to raise interest rates supporting the strong dollar we could continue to see pressure on the gold price. Trying to predict the price of gold is a difficult game – to some it has little value and is of no use, whilst others are willing to pay over $1000 dollars for just an ounce of it. In times of distress it is in great demand, and for this reason will continue to appeal to investors who are concerned about the strength and persistence of the economic recovery.

Investors can use gold to provide some insurance against inflation and to protect against falls in prices of other asset classes such as equities where it will rise when they sell-off. As such gold can provide some necessary diversification for investors looking to reduce volatility and holding some exposure to gold for the longer term is often advisable. On the whole I would suggest no more than 5-10 per cent of a portfolio should be held in gold and be prepared for periods of underperformance.

Adrian Ash, head of research at BullionVault.com
UK gold investors now anxious about today's drop will regret not selling sooner. It's worth reviewing the reasons why you invested, and seeing if they still hold true. Big picture, global interest rates have never been lower, and central banks everywhere actually want to create inflation to try and juice economic growth. China's gold demand from the private sector of households and investors is almost three times heavier than the People's Bank. But while these underlying trends hold firm, speculative sentiment is now very bearish. Long-term gold owners should expect a bumpy ride short term.

For UK savers holding a good spread of investments, gold continues to act as financial insurance, rising when other assets perform badly, but falling when equities in particular do well. Like all insurance, that comes at a cost. Buying gold has consistently reduced portfolio losses for UK investors over the last 40 years, but owning it can reduce your gains when other assets are outperforming.

Andrew Humphries, marketing and communications director, St James’s Place Wealth Management
Demand for gold has been muted, and the price of the precious metal ended the week at its lowest close since April 2010. Conditions for gold buyers are not exactly propitious as the metal is generally seen as a hedge against inflation. It has a role as a safe haven when crisis strikes, but neither the prospect of Grexit nor the recent Chinese stock market plunge prompted much buying.

Crossborder Capital
Capital flows move currencies, not relative money supplies. Capital is attracted into economies by the prospect of higher returns and it tends to quit economies when the domestic central banks print money. In other words, it is the quality as well as the quantity of liquidity that matters, which we often express as “good” money less “bad” money. More “good” private sector liquidity boosts currencies, because it signals reviving economies and higher capital returns, while more “bad” central bank money weakens them.

This balance has often given a vital “heads up” for currency direction, as shown by the US dollar and emerging market currencies compared to relative liquidity advanced by six-to-nine months. Using this same methodology, which of the world’s key currencies are most at risk of depreciation and appreciation? Strongest units would appear to be the Canadian and US units; the Swedish krona, curiously the Australian dollar and sterling. The New Zealand dollar (kiwi) looks the most vulnerable of the majors, followed by the euro and then by the bloc of emerging market currencies. Emerging market currencies are generally suffering from loose central bank liquidity (index 51.3) and still weak (albeit improving) private sector liquidity (index 43.8). The world “average” indicates the antithesis of gold. In other words, if this bar has a strong positive reading gold should be weak. Until it moves above the zero axis, gold should remain weak.