APAC asset owners lead the charge in raising gold exposure
More Asia-Pacific asset owners are poised to increase their gold investments over the next 12 to 18 months, compared to their North American counterparts, according to a survey released on Wednesday by State Street Global Advisors (SSGA) and the World Gold Council (WGC).
The findings underscore the region's growing appetite for the precious metal. The demand will be led by investors in China, Japan, and India across retail and institutions, in line with what the market has seen in the first half, noted Robin Tsui, SSGA’s Asia-Pacific gold strategist.
“I think Asian investors generally are facing a different economy versus the US — the lower interest rate environment has been beneficial for Asian demand in 2024. And I expect that will be the trend going forward, as the US delays the rate cuts,” Tsui told AsianInvestor.
The gold perceptions survey was commissioned by SSGA and the WGC in the fourth quarter of 2023, interviewing 850 institutions and financial service providers globally, including 63 asset owners in Asia Pacific — represented by Hong Kong, Singapore, Thailand, Malaysia, Japan, and other markets.
It found that 27% of asset owners in the region anticipated adding their gold exposure in the next 12 to 18 months, compared to 21% of asset owners in North America.
Asset owners in the region cited portfolio diversification, especially during market turmoil and uncertainties; and hedging against a weakening US dollar, as top reasons for investing or increasing exposure to the precious metal.
In the past six months, gold prices have hit multiple record highs, going up 12.8% or $264 to around $2,325 per ounce on Tuesday.
Across the Asia Pacific, the central banks of China, Japan, and India were among the world’s top 10 holders in total gold reserves, ranking 6th, 8th, and 9th respectively, according to WGC data as of June.
During the first quarter, China, India, and Singapore were among the most active in adding gold reserves, with the People's Bank of China (PBOC) leading the pack by increasing 27 tonnes, followed by the Reserve Bank of India and the Monetary Authority of Singapore.
Their strong demand for gold is poised to continue in the second half, said John Reade, WGC’s chief market strategist for Europe and Asia.
Notably, appetite from family offices and high-net-worth individuals (HNWIs) is also expected to remain, he said.
Reade noted that investors in Asia Pacific were more concerned about monetary policy and geopolitical factors compared to their North American counterparts with a “big, safe continent” mindset, who were more worried about inflation, and less about geopolitics.
Meanwhile, the stronger performance of US equities compared to Asian equities also made US investors less motivated for portfolio hedging, he said.
Agreeing with Reade, State Street’s Tsui also noted currency depreciation against a strong US dollar in Asia as a factor for Asian investors to invest in gold.
“In Asia, we are facing this currency depreciation in most of the APAC countries, including Japan. And some of the Thai asset owners, based on our discussion, are quite concerned about the Thai Baht depreciation as well,” Tsui said.
The survey showed that 76% of Asia-Pacific asset owners have had exposure to gold.
Among all asset owners surveyed, nearly half of them allocated between 1% and 4.9% to gold in their portfolios; 22% of them allocated between 0.1% and 0.9%; and only 8% put more than 5% of assets in the metal.
BULLISH OUTLOOK
In 2024, as the US Federal Reserve delayed projected rate cuts amid a strong US economy and sticky inflation, gold has been performing exceptionally well and continuing to hit record highs, which beat market expectations.
“Gold has done a lot better than we were expecting, and it’s done so not because of Western investment demand. It’s done so because of emerging market demand of all types,” WGC’s Reade told AsianInvestor.
This included demand from central banks, jewellery purchases, investment in gold bars and coins, and over-the-counter investments, or investments from HNWIs and corporates in emerging markets.
China and India have been posting strong demand for gold exchange traded funds (ETFs), Reade noted.
“It’s been an emerging market story rather than a US interest rate story this year,” he said.
“If we get to a situation where Western investors start buying gold more enthusiastically [when rates decrease] and those emerging market factors continue, then that could see gold being bought in all areas and would likely lead to substantial new highs,” he added.
Reade suggested investors who are looking at tactical trading pay attention to market movement in COMEX trading and China’s futures exchanges. Any corrections may present buying opportunities for tactical positions, he said.
In State Street Global Advisors's base case outlook for gold price in the second half, it expects gold to trade between $2,200 and $2,500 per ounce, supported by US rate cuts, a weakening dollar, and safe haven buying amid market volatilities created by political elections.
In the bull case, the firm expects the price to be between $2,500 and $2,700, according to Tsui.
“We remain quite bullish on the second-half performance,” he said.
This article has been updated in the 8th, 9th paragraph to correct information on central banks' gold reserves.