Gold’s increasing relevance in your portfolio
Since the start of the year, gold has staged a stellar rally. In the years ahead, we believe it will continue to play a key role in an investor’s portfolio. Following are some of the factors that contribute to gold’s growing significance as an investment asset.
Real rates in the US and the allure of gold: Among the various investment avenues, gold stands apart due to its lack of credit risk and its intrinsic real value. This intrinsic value is best understood when considering inflation-adjusted rates. This is akin to the case of US Treasuries, which are often regarded as nearly ‘default-free.’ Investors have historically favoured US Treasuries when they offer high real rates (inflation-adjusted rates). This preference for US Treasuries has historically kept gold’s price range relatively narrow. However, as real rates approach their peak and are expected to cool-off going forward, the allure of gold is expected to shine brighter.
Heightened geopolitical tensions and the need for diversification: For nearly three decades, from the 1990s to the 2020s, the world experienced a period of de-escalation in terms of geopolitical tensions. However, the global landscape is currently undergoing a significant transformation, characterized by mounting geopolitical tensions and during such times, investors frequently seek safe-haven assets. Gold stands as a favoured choice for those looking to hedge against geopolitical risks and mitigate unpredictable outcomes. The need for diversification and allocation to assets like gold becomes evident as a prudent strategy for investors navigating an increasingly uncertain global environment.
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