Fund selectors are pondering whether gold can provide an all-weather diversification benefit in an era of lofty valuations, following a fresh rally in the price of the precious metal.
Investors have spent the opening months of 2017 adding to gold amid a fall in the value of the dollar and concerns over rising inflation and geopolitical tensions.
Gold’s spot price now stands at $1,288, up 12.5 per cent this year in dollar terms and 8.5 per cent in sterling.
Global flows into gold exchange-traded funds (ETFs) stand at $543m (£433m) year to date, more than the amount seen for equity ETFs, according to ETF Securities.
But this figure may be a conservative estimate. Fellow provider Source has seen its $4bn Physical Gold ETF take in more than $500m so far this year.
Schroders multi-manager head Marcus Brookes said gold positions made “an awful lot of sense”, given his expectations of both an uptick in US inflation and political uncertainty.
He has added to the precious metal in recent months and exposure now accounts for 6 per cent of his £895m Diversity fund.
With gold having no intrinsic value, its attraction is governed by sentiment alone, and some buyers think there are more reasons to be positive now than in the past.
Architas investment manager Nathan Sweeney said he had increased a position in the metal this year, calling it a “prudent” diversifier.
Ben Seager-Scott, director of investment strategy at Tilney, described himself as “incredibly wary” of gold, but said the metal did have a position in the firm’s portfolios.
“I’m not holding it specifically against inflation risks, rather it’s for diversification versus bonds and equities, which look expensive after years of excess liquidity from central banks,” he said.
“Even though history has shown it shouldn’t be thought of as a ‘safe haven’, it could nevertheless be an attractive store of wealth if there is a market correction.”
One particular catalyst for gold’s advance this year has been the US dollar’s drop.
The metal is typically inversely correlated to the currency, which has weighed on bullion since 2013 – not least in the second half of last year when its price declined by 15 per cent.
Mr Brookes noted the dollar had been struggling to move higher, despite the tightening of monetary policy in the US.
“We would challenge the consensus that [the dollar] should go up when rates rise. I think it is in the price,” he said.
Robin Kyle, an investment manager at Tcam, said he did not back the use of gold as a diversifier and described its reputation as an inflation hedge as a “self-fulfilling prophecy”. But he said he could understand the demand case.
“We don’t have the euphoria yet that accompanies the end of a bull market, so people are still cautious,” he said.
“There is potential for safe-haven assets to do well, especially if you’re worried about bonds and bond proxies.”