Advisers must be on their metal to capitalise on the gold surge
One of the burning questions in the industry at present is where to look for outperformance in 2025. At the same time, many clients understandably seek a flight to safety from the consequences of geopolitical maelstroms and with tariffs threatening to tip the US into recession.
In recent months gold has dominated headlines, whether it’s vis a vis Elon Musk and Fort Knox or regarding gold’s role as a shock absorber. Indeed, March has ushered in a “new chapter for gold”, with prices rocketing toward $3,000 per ounce.
Meanwhile, Central Bank buying of gold in the past three years has reached historic highs. US treasury secretary Scott Bessent’s remarks on monetising the asset side of the balance sheet signalled a renewed recognition of gold’s vital role in financial stability.Yet while the US Commodity Exchange (COMEX) inventories hold strong at 41.4 million ounces, London’s own reserves have plummeted by 12% since 2022, signalling a tightening of the supply chain.
As our traditional markets face increasing vulnerability, even emerging markets such as Turkey, Poland, and Nepal are expanding and repatriating their gold reserves.
Meanwhile, China’s decision to allow insurers to allocate 1% of their assets to gold could unleash an unprecedented $27bn in demand.
Some believe we could be witnessing a new global gold standard being born and, all this, during uncertain times when investors are gravitating to strategies that can protect their wealth, stabilise their portfolios and act as a hedge against inflation.
Historically, gold has been regarded as a safe haven and stable store of value, holding its own as currencies and capital markets lurch.
According to the World Gold Council, this precious metal has shown a remarkable performance during times of economic distress, appreciating as much as 25% during major market downturns while often maintaining its value in inflationary environments. For example, from 2001 to 2021, gold prices surged by more than 500%, outpacing inflation and showcasing its effectiveness as a store of value.
In recent years, demand for physical gold has been sustained, with global gold demand reaching approximately 4,021.3 tons in 2022, reflecting a strong interest in its use as a wealth preservation tool, very often among retirees. This increased demand has in turn reinforced gold’s stability in portfolios.
For all these reasons, we’d suggest that now is a good time for advisers to at least do some due diligence and conduct a more critical evaluation of their gold strategies.
One core question will be whether clients should continue to rely wholly on ETFs, or to balance this with the benefits of a more tangible asset?
This will, naturally, depend on the balance of a client’s portfolio and how much they have to invest. For those with much less than £10,000 to invest, sticking to an ETF for gold exposure might still be best.
Advisers are well aware of the advantages of ETFs, for example low minimum investment and the convenience and the ability to trade like stocks.
However, the flip side of the coin is that they do not provide direct ownership of gold and are subject to counterparty risks. Ownership of an ETF essentially means holding a share backed by gold, effectively creating a debt relationship.
Another consideration is that the income generated from ETFs is treated as regular income and is subject to tax, whereas physical gold often benefits from VAT exemptions and, in the case of UK gold coins, exemptions from capital gains tax.
We would argue that the reality is that while ETFs often claim to hold ‘allocated gold,’ in these unprecedented times they do not provide the tangible security and peace of mind that direct ownership of physical gold offers.
We certainly are experiencing a sharp rise in interest from a broad church of clients who want exposure to the security and stability of their own physical asset alongside a more conventional portfolio.
Regardless of the overall portfolio strategy, or the vehicle used, the fact remains that over a deck of periods, say, one, three or 10 years, gold returns have comfortably outstripped those of other asset classes.
And, according to the World Gold Council, bullion has delivered annual returns of 8% since the gold standard was abandoned in 1971.
Source: https://www.moneymarketing.co.uk/