Precious metal is like your vintage record player – and the asset class's time has come around once again
To put the asset class in West End hipster terms, gold is like that vintage record player conspicuously placed in the front room. With new digital gadgets (trendy investments) pushed to the forefront, you forget why you love the original scratchy sound of vinyl. But in times of depression, it remains your most treasured possession (reliable asset).
Like that trend-chasing hipster and their turntables, many investors have ignored gold and why it fits into their portfolio. Greg Taylor, CIO at Purpose Investments, said that many folks will have watched stocks run higher over the past decade and decent yield in bonds, and question why they needed an asset that usually requires a fee to store.
However, with the March downturn and the economy battling hard against the COVID-19 recession, bullion has soared 29% this year as investors seek a safe haven. It took a break yesterday from a nine-day rally but analysts – and the World Gold Council – expect demand to hold up. Gold prices hit an all-time high of more than $1,950 an ounce on Wednesday, while a new record above $2,000 seems likely in the wake of Federal Reserve Stimulus, low bond yields and a weakening U.S. dollar.
Taylor said: “In a world where many countries have negative interest rates and in the middle of a global pandemic that has led to economic uncertainty, gold is once again reminding us of its worth, and why it should be a portion of everyone’s investment portfolio today.
“As an asset class, gold has traditionally been seen as a long-term store of value, an insurance policy versus either runaway inflation or geopolitical disaster. Given the headlines of 2020, we seem to be getting closer to these scenarios coming true.”
Taylor said the unprecedented stimulus effort by both governments and central banks to offset the effects of the pandemic have resulted in a massive increase in monetary supply, which has the potential to cause longer-term inflation. He warned it will take years to pay off the increasing debts and fix spending deficits. “Interest rates are expected to remain low for a very long time and as demand begins to recover, there is a very real chance that with it will come inflation. Gold is a way to protect against it.”
Another attractive way to look at gold is as a currency and one that can’t be printed by central banks. With its relatively fixed volume, it begins to look even better when the global money is expanding. In hipster speak, the coolest, fanciest MP3 player might be being produced in the millions but that original vintage turntable will always hold its value.
Taylor said: “There is a scarcity factor in gold that is not present in many other commodities. The US dollar has more recently been seen as the de facto safe-haven asset that investors rush to in times of duress. However, given the increasing trade tensions with many trading partners and questions around the way the American government is handling the COVID crisis, can this safe-haven quality last forever? As gold is traditionally priced in US dollars, a decline in the value of the greenback would be good for gold. Many are waking up to this fact and importantly we are even now starting to see gold move higher in many currencies, not just the US dollar.”
How do you buy gold? For the average investor, it doesn’t always seem that accessible. Do I buy a physical bar? Do I invest in miners? Or do I invest in a gold-backed ETF?
Taylor believes the Purpose Gold Bullion Fund (KILO) provides the best combination of features of any gold product investment product on the market, with the bullion secure and stored safely at the Royal Canadian Mint. This is preferable, he added, to investing in gold miners which, while potentially successful, takes work and an understanding of how different companies have different assets that come with geological, political and operating risks. Like with equities, investing in gold stocks will take on market risk, and is less likely to serve the purpose of adding diversification to your portfolio.
“Seasonally the timing is good to take another look at gold,” he said. “The summer has been a good time to hold the metal as market volatility usually ramps up into the fall. This year should be no different given the contentious election coming up in the United States. But holding for the long term would also make sense to ride out the coming storm as governments everywhere deal with the pandemic and the potential for a second wave.
“Gold has been an attractive investment for thousands of years. While times have changed it’s important to remember that some things don’t change. Having exposure to gold makes as much sense now, as it did years ago.”