Is Gold More Than a Wonderful Safe Haven?

By Chief Investment Officer, Chuck Self on September 30, 2016

Precious metals, especially gold, have been fabulous investments this year.  SPDR Gold Shares (GLD), which holds gold bullion, is up 23% during 2016’s first three-quarters.  VanEck Vectors Gold Miners ETF (GDX) has risen 86%.  Given that US stocks are up about 8%, precious metals investments have had a fantastic year.

Our partner, ETF Securities, has created an informative infographic on the supply and demand factors for gold.  Since the supply of gold does not change much from year-to-year, demand for the metal will drive its price trend.  As the infographic indicates, the greatest increase in 2016 demand has come from investments.

The chart presents four sources of investment demand for gold:

1. Safe Haven Assets – Geopolitical or financial disasters may move the price of gold higher.  In 2008, GLD was up almost 5% while the stock market was down 36%.
2. Hedge Against Event or Tail Risk – During the week following the Brexit vote in June, gold rose over 7% while the stock market declined.
3. Diversifier of Equity Exposure – Gold is consistently uncorrelated or negatively correlated with stocks.  Over the past six months, gold has had a -38% correlation with stocks meaning that when stocks go down, gold tends to rise.
4. Hedge Against Uncertain Central Bank Policy – The combination of Federal Reserve inaction, Chinese central bank uncertainty and European and Japanese experiments with negative interest rates have led investors to increased allocations to gold.

iSectors® is an asset allocation firm with an expertise in gold and other precious metals.  We manage the premiere Precious Metals Allocations in the industry.  The iSectors Precious Metals Allocation invests in the most tax-efficient funds that hold gold, silver, platinum and palladium bullion.  The iSectors Inflation Protection Allocation is a diversified portfolio of commodity funds, including precious metals, real estate investment trusts and inflation-protected US Treasury security funds.

Investors can be exposed to the alternative market of hedged strategies, non-traditional equity funds, and real asset investments including precious metals funds through the iSectors Liquid Alternatives Allocation.  Finally, investors searching for tactical exposure to gold stocks when they are attractive should explore the iSectors Post-MPT Growth and Moderate Allocations.

These Allocations are available only through a select group of investment advisors.  To connect with an advisor in your area, please contact Chuck Self at [email protected].