As sticky core inflation and solid economic data continue to indicate a higher probability of a soft landing, advisers have seen clients’ risk appetite notably improve in recent months.
While this presents opportunities for advisers to make adjustments to clients’ portfolios accordingly, there is good reason to maintain investment in assets typically considered ‘safe havens’ like gold.
Sometimes overlooked or misunderstood, gold is an asset that plays an important role in client portfolios amidst varying macroeconomic conditions.
Looking at the year so far, its recent price performance has remained resilient, even as the market outlook has shifted.
According to the World Gold Council’s recent report on gold demand trends, total investment in the second quarter of 2023 was up 20 per cent year over year to 256 tonnes, pointing to a solid gold market globally.
This investment was driven primarily by bar and coin growth and over-the-counter (OTC) market strength.
So what does this all mean for investors?
Gold is an important asset under all economic conditions
Gold has unique characteristics that make it a desirable asset under all circumstances, both during times of uncertainty and as a crucial asset for a well-diversified portfolio.
Unlike equities, gold has historically performed well in periods of financial turmoil, meaning investors can use it for portfolio diversification and as a source of liquidity.
While most assets tend to increase their correlation to equities in periods of high market uncertainty and often fall in tandem, gold’s price has generally increased in these same periods.
Since 1971, returns on gold have been similar to equities and have outperformed bonds.
In the past 20 years, gold outperformed most major asset classes. Additionally, gold’s global investment demand increased by an average of 15 per cent per year during these two decades.
What gold demand trends mean for investors
Let us look at some 2023 data: in the second quarter of 2023, our data shows that central bank buying slowed but remained resolutely positive.
This, combined with healthy investment and resilient jewellery demand, created a supportive environment for gold prices.
Bar and coin investment increased 6 per cent year over year, driven by notable growth in a few key markets.
Jewellery consumption was up 3 per cent year over year to 476 tonnes, which is remarkable in the face of persistently high prices in most markets.
We believe that the floor for gold is high through the end of 2023.
Steady demand from institutional investors and central banks, as well as high retail and consumer demand from China, provide strong price support for gold.
The potential to maintain year-to-date gains is likely in most scenarios. Should the economy enter a downturn, we may see investors turn to gold in even greater numbers.
Gold remains well supported following a record central bank demand of 387 tonnes in the first half of the year.
Our full year 2023 expectation for investment demand is unchanged as strong OTC demand makes up for softness in exchange-traded funds and, to a lesser extent, bar and coin investment. The positive central bank trend is set to continue and will be supportive of overall demand and price.
