Bullion reverses 2016 dip as jittery investors flock back to asset class

Bullion reverses 2016 dip as jittery investors flock back to asset class

Nervousness in markets often prompts investors to consider allocating to gold and precious metals or increasing their existing exposure.

There is good reason for this as these assets often act as safe havens, meaning they can help to diversify a portfolio of bonds and equities. This year has seen few market ruptures but investors have returned to gold regardless.

Chris Mellor, executive director, product management at Source ETF, observes: “While the risk-on move in markets in November and December coincided with gold outflows, investors have come back in aggressively in 2017. As geopolitical risks continue to worry politicians and investors alike, we fully expect gold flows to continue."

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Mr Mellor says events in 2016 explain why the appetite for gold is growing. 

“Last year’s key drivers were market volatility, the shock of the Brexit vote and the uncertainty in the run-up to the US presidential election," he explains. “Political and economic fears continue to worry investors in 2017."

The Source Physical Gold exchange-traded fund (ETF) has seen more than half a billion dollars of inflows since the start of 2017 and over $2bn since the start of last year.

Another reason for increased flows into gold and precious metals may be because there are now more ways in which investors can access these investments.

The World Gold Council's John Mulligan acknowledges this can vary from buying gold in physical form such as bars and coins, to getting exposure through gold ETFs that are listed on a stock exchange.

He notes: "The cost of directly owning physical gold, if on a substantial scale, may involve storage and insurance costs. However, it is now often possible to invest in gold accumulation plans and gold-backed saving plans which allow investors to slowly build their holdings. Similarly, there are now a range of low cost online platforms that buy, sell and vault gold on behalf of the investor, although there may be an additional cost if you wish to receive the physical gold rather than its equivalent cash value.

"The expenses associated with gold ETFs typically include a very small annual fee, to cover fund management and administrative costs, and these products are typically highly liquid. The gold ETF market, with total investor holdings currently valued at around $93bn, has made gold accessible to a far wider set of investors."

He adds: "Finally, there are gold mining stocks and gold mining funds which offer some exposure to the gold price but have a far different risk and return profile, as with any equity-based investment. In a buoyant market they may offer considerable upside, but the investor may also face a steeper decline if the market reverses."

As with any asset class, investors should consider which vehicle gives them an exposure that suits their investment boundaries.

Rory Mcpherson, head of investment strategy at Psigma Investment Management, believes it makes sense to have an allocation to gold and precious metal in portfolios.