If you need just one more thing to convince you gold is going to be a desirable asset next year, news that Future Fund has now joined the yellow metal’s fan club should do it.
The time to listen to positive gold forecasts is not when the gold industry is putting them out – that’s a bit like real estate agents saying it’s time to buy property – rather it is when independent forecasters take a shine to it.
The Future Fund’s latest position statement this week outlines how investors have to reset in the face of a new investment world order “where there is a risk of sustained higher inflation”.
It is the persistent risk of inflation coupled with what the Future Fund describes as a “fracturing of the geopolitical order, bigger government and more extreme forms of monetary policy” that has led its chief executive Raphael Arndt to holding “a few per cent” in gold.
As it turns out, the fund has been accumulating gold since around 2020. No doubt the Future Fund and its board may have been disappointed the yellow metal did not move higher in a convincing fashion in 2022.
But then again, gold was one of very few places where values did not go dramatically backwards this year – most investments in shares, bonds, and property lost money in 2022.
In 2023 the big change in relation to gold is that the underlying conditions of sustained inflation and lower growth – not to mention possibility of a recession remain in place. But crucially, those factors are now running in tandem with a peak in sight for US Fed-driven interest rate increases and a parallel decline in the US dollar.
Put those elements together and you can see why there is a major consensus “buy” building for gold, especially among the world’s leading investment banks such as Morgan Stanley.
In Australia, domestic investors may be even more bullish because in Australian currency terms they are already ahead. Over the last 12 months, in US dollars gold did very little – it may finish the year down one or two per cent. However, in Australian dollars it is up around 6 per cent for the year. This week the gold price is near US$1792 or $2643.
Separately, the deep trouble hitting cryptocurrency is also a key factor in a strong outlook for gold. No doubt some of the money now flowing out of crypto-related Exchange Traded Funds will soon find its way into gold ETFs.
The recent rush of reports are backing gold – the commodity – as opposed to gold mining stocks, though there is ample evidence that gold miners as a sector will broadly rise and fall with the fortunes of the underlying commodity.
Most private investors in Australia access gold through ETFs or products from the Perth Mint, which calls itself the “only mint in the world backed by a government guarantee”, though it has been hit with a string of scandals in recent times.
The best known locally listed gold ETF product is the $2.5bn Global X Physical Gold Fund – which has managed a 10 per cent total return on average over the last five years. Over the last 12 months it is up by 6.4 per cent.
The VanEck group, another key player in the ETF sector, has also backed gold in the year ahead. In a note to investors it spells out five reasons that “it may be worth considering physical gold as an addition to your portfolio”:
• Gold retains its value
• It offers a negative hedge. Over two decades it moves the opposite way to shares.
• Gold is a finite resource
• It preserves purchasing power against inflation
• Gold is a universal currency
What could possibly go wrong? For the gold upside theory to fail, at the very least we would need rates to keep rising, the US dollar to remain stronger for longer and no recession in the US.
At this point, it looks like having “a few per cent” in gold could be a very good bet for the year ahead.
More Coverage
Should you really be paying for your grandkids’ school fees?
Over the past 20 years private school fees have risen by more than double the rate of inflation and the burden has increasingly fallen on grandparents. Is it worth it?
The pink-haired CEO who didn’t want to be just an ‘older woman in a suit’
Dying her hair pink just before a Nasdaq listing as a way to stand out as a founder ended up transforming the culture of US tech giant BlackLine and propelling Therese Tucker’s wealth to more than $500m.