Gold is increasingly adding a shine to investment portfolios and the attractiveness is only going to increase, according to State Street Global Advisors.
More than half of the investors who hold gold assets or gold ETFs say they plan to increase their investment over the next year, State Street said.
“Historically, gold does well in recessions and we probably are heading into a recession. The only question is how deep it will be and how long it will last,” George Milling-Stanley, chief gold strategist at State Street Global Advisors, said in an interview. “We have experienced seven serious recessions in the last 50 years and gold has increased in value on average by 20% during those recessions.”
“Inflation also is proving to be sticky, although it is coming down, and gold also does well in inflationary times,” he said. “In normal times, a portfolio can do well investing 2% to 10% of assets in gold. During exceptional times, like today, an investor can double that percentage. In particular, gold ETFs have proven to be resilient during times of market turbulence.”
State Street Global Advisors recently released the results of its “Gold ETF Impact Study,” which showed that 53% of holders of gold, and 57% of holders of gold ETFs, plan to increase their allocations in the next 12 months. The survey included 1,000 with at least $250,000 in investable assets.
Twenty percent of U.S. investors currently have gold in their portfolios, with an average gold allocation of 14% of portfolio assets. Seventy-three percent of gold ETF investors said their exposure to gold improved their portfolio performance. Investors have confidence in gold, with 80% of all investors saying gold will always have monetary value.
According to the survey, gold investors feel the benefits of owning gold is that it maintains or increases value in an economic downturn. They also feel it is a form of diversification, and a hedge against inflation.
“With recession risk still looming, the allure of gold as an investment in today’s market environment continues to be very strong," Milling-Stanley said. "Year-to-date, SPDR gold ETFs have attracted more than $2 billion of inflows, and now has a total of $6 billion in assets, which is a testament to the unique attributes of the asset class and the accessibility, transparency, and cost effectiveness of the ETF wrapper.”
Although the three-fourths of the investors with gold in their portfolios said they understand some of the variables impacting the price of gold, only 41% said they totally understand what influences its price.
“There is still significant room for more investor education about the benefits of gold and the role it can play in a portfolio,” Milling-Stanley said. “As the entire gold industry continues to improve the education around how to invest in gold and the portfolio benefits it can provide, we expect to see growth in gold investment demand.”
For investors familiar with gold ETFs, 60% said they believe gold ETFs are the best way to invest in the commodity. The key perceived benefits of gold ETFs were convenience, and the ability to gain from price fluctuations without having to buy and sell physical gold.
“Our study found that investors holding gold ETFs are more likely to be optimistic about their financial future than those who do not,” said Milling-Stanley. “We expect the three Rs–rates, recession and risk–to be the key drivers for gold prices. In addition, there is not expected to be a reduction in the geopolitical uncertainty that is plaguing the world, all of which make gold an attractive investment.”