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Gold is often referred to as a safe-haven investment, but has it justified that reputation over the long term? We take a look.

Is gold a long-term performer?

James Dunn
27 July 2016

By James Dunn

Recently, Switzer Daily brought together experts from ABC Bullion, Hunter Hall and ANZ ETFs to discuss the themes, challenges and opportunities around investing in gold. In the first part of the series, we look at gold as a safe-haven investment. 

If ever there was a time when gold should step up to the plate, it’s now. 

Gold has a traditional role as a ‘safe-haven’ investment – that is, a real store of value – at a time when ‘financial’ assets are falling, markets are skittish and political and economic risk abounds.

At such times, gold has always appealed to investors as a real physical asset with no credit or counter-party risk.

Yet again, gold has stepped up to the plate, says Jordan Eliseo, chief economist at precious metals bullion dealer, ABC Bullion.

“The media has been saying that we are in unprecedented times, and while there is some truth to this, the reality is we have been in these kinds of situations before, where from the point of view of storing wealth, we can’t rely on financial assets and currency anymore,” says Eliseo.

“Precious metals can play a key role during these periods of turbulence.”

The historical returns of gold are the best of the so-called “risk-free” assets during periods of equities volatility, he says.

“The other reality is that real rates of return on cash are effectively negative. The central banks are saying that to keep the global economy going, we have to debase currency.

“The gold price tends to increase, on average, by more than 20% when the real cash rate is less than 2%, because at these times, people are worried about the overall market and economy. Gold prices are entirely demand-driven, so during these periods, the gold price goes up,” says Eliseo.

Peter Hall, founder and chief investment officer of funds management firm Hunter Hall, says gold has “very much justified” its reputation as a safe-haven asset.

“The classic measure of the value of gold is that an ounce of gold is worth enough money to buy a man’s suit, and that holds true today.

The amount of British pounds that it takes to buy an ounce of gold has risen by about 1.8%–1.9% a year for about 300 years, so gold is really a fantastic store of value, it has defeated all other currencies and stores of value. As a proven store of value, that makes it prudent to hold in any well-diversified portfolio, in some form,” says Hall.

Kris Walesby, head of ANZ ETFS (a joint venture between ANZ Banking Group and London-based ETF Securities) says Australian investors are one of the lowest users of gold in their portfolios compared to their overseas counterparts, which was why ANZ ETFS offered gold exposure in its ANZ ETFS Physical Gold exchange-traded fund (ETF), which trades under the ASX code of ZGOL.

“Australian investors don’t hold much gold in portfolios, but it’s important in portfolio design and we see a lot of value in providing this diversification for investors.

Historically, gold has a low correlation with equities and fixed income – which are the mainstays of most portfolios here. Gold is negatively correlated with equities in negative equity market moves. So it’s not always about growth, but also about protecting SMSFs’ (self-managed super funds’) wealth,” says Walesby.

But Eliseo says there can be too much focus on gold’s defensive attributes. He says the yellow metal is also a very sound long-term performer.

“All we ever hear is the US$ gold price, but the A$ price is most relevant for local investors. The price volatility of A$ gold is much lower than US$ gold – and for the last 40 years, A$ gold has shown a very steady return, of about 9% a year,” he says. 

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