This May Send Gold Higher

This May Send Gold Higher
Stéphane Renevier, CFA

about 1 month ago2 mins

Investors’ portfolios tend to be dominated by stocks and bonds – not gold. And there are good reasons for that: the yellow metal doesn’t pay interest or dividends, its returns can be erratic (even over long periods), and it’s almost impossible to value its true “worth”.

That being said, there are also good reasons why investors might want to own some gold: it’s an effective hedge against the devaluation of traditional currencies and it acts as a shield against inflation. As a “safe-haven” asset, it also provides a sense of security during market turbulence, and its low correlation with stocks and bonds adds a layer of diversification. Even better, in a portfolio context, it’s one of the only assets that can defend your portfolio against the threat of stagflation – the toxic mix of high inflation and little to no economic growth that can really take a toll on both stocks and bonds.

So it does seem like owning some gold right now would make sense. And yet, as the chart shows, more than 71% of advisors have almost none of it. And those who do own gold have only a minimal amount (less than 5% of their portfolio). That’s not enough to make a real difference to a portfolio, especially since it’s an asset that tends to see much smaller price moves than stocks.

But with inflation likely to remain hotter for longer, policymakers experimenting with unconventional policies, central banks buying big amounts of gold, and geopolitical, financial, and market risks on the rise, investors’ prevailing indifference to gold might just fade away. And if that happens – and investors start to allocate even a little more of their portfolios to gold – that rush of buying interest might be all it takes to substantially drive up the price of the metal. And that, in turn, could drive more demand for it and further push its price up. That’s just one more reason to add a bit of glimmer to your portfolio now.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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