Precious metals are arguably some of the most popular investment options in the investor’s low interest rate playbook. The current combination of easy money policies and an uncertain economic outlook also play into gold’s favor.
“Gold is perceived by investors to be one of the best investments, recovering quickly from economic downturns,” says Spencer Campbell, director at SE Asia Consulting Pte Ltd. Oftentimes, the price of gold “also runs counter to stock market or economic fluctuations,” Campbell says.
Gold prices have hit new all-time highs in 2020, reaching more than $1,950 per ounce. While it’s a commodity that’s definitely difficult to value, some mainstream ratios used to value the precious metal indicate there could be more room to run, says Charles Self, chief investment officer at iSectors.
“The S&P 500 to gold price ratio is slightly above the average over the past 50 years,” Self says. The current economic uncertainty, low interest rates and dramatic increases in the money supply might indicate there’s room for this ratio to fall, making gold outperform equities. Self sees a risk of this ratio returning to the lows seen in 1980 and 2011.
“Given that precious metals have no significant correlations to equities or bonds, portfolio managers are just starting to implement allocations to precious metals as another diversifier to stocks, besides bonds,” Self says.
And it’s not just gold that stands to benefit, but other metals, too, Self adds.
“At iSectors, we believe that the best way to take advantage of this situation is to own a diversified portfolio of precious metals. This portfolio would include gold, silver, platinum and palladium,” Self says.