Asia family offices pile into gold as hedge against market turmoil
Family offices in the Asia Pacific region have been among major buyers of gold over the past year, ramping up allocations to the precious metal as a hedge against market uncertainties.
The region’s growing appetite has been led by investors in China, Japan, and India, who have fuelled the 24% surge in gold prices in the last 12 months.
“The real change, aside from central banks, in my experience, has been coming from high-net-worth individuals (HNWIs) and family offices,” said John Reade, World Gold Council’s (WGC) chief market strategist for Europe and Asia.
Reade has had more conversations this year with family offices and HNWIs in Asia, and fewer with institutional investors, which didn’t demonstrate much new interest in gold.
He cited family offices’ long investment horizons aimed at preserving generational wealth as a key motivation for raising gold exposure.
William Chow, deputy group chief executive officer at the multifamily Raffles Family Office, observed Asian family offices sending significant inflows into gold over the past few months, primarily for diversification.
Raffles itself has increased its allocation by 2-3% in the portfolio. The family office is based in Hong Kong and has offices in Singapore, Shanghai, Beijing and Taipei.
RISK HEDGING
The primary reasons are diversification and risk hedging, Chow said. These include US interest rates and inflation, global geopolitical developments – especially conflicts in the Middle East – and overall economic uncertainty.
He noted that family offices typically prefer physical gold or gold ETFs as their instruments of choice, which are normally categorised under precious metals in their alternative assets portfolio.
“We normally recommend 3-5% allocation in gold as a hedge against inflation and geopolitical instabilities. This serves well as part of portfolio diversification,” Chow said.
Among those buying are clients new to portfolio diversification who are using real assets like gold to mitigate global risks, said Donny Lam, chairman of DL Family Office, a Hong Kong multifamily office serving Greater China families.
Similarly, Augventive Limited, a Hong Kong-based single-family office, is looking at gold and commodities to adapt its portfolio to market volatilities, said co-founder Charlie Bigard-Ong at an AsianInvestor event in June.
POPULAR INSTRUMENTS
Asian investors have been important contributors to gold’s recent performance. This has been evident through demand for bars and coins, gold ETF flows, and in the over-the-counter market.
WGC’s Reade noted the growing use of ETFs across the Asia Pacific region, especially in China, Japan, and India.
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The inflows have come from different types of investors across the region, according to Robin Tsui, State Street Global Advisors’s Asia-Pacific gold strategist.
“It's not only the asset owners but the asset managers, retail investors, private banks, family offices have been increasingly inquiring [into] gold ETF products,” Tsui told AsianInvestor.
“Internally, we're seeing much more demand coming from Asia versus clients in the US and Europe,” he said.
In China, bar and coin consumption jumped 68% year-on-year in the first quarter to 110 tonnes, aided by positive sentiment from central bank purchases, WGC data show.
While the fundamentals of gold ownership remain in place, a pause in buying by the People's Bank of China "may encourage profit-taking by more tactical investors", the World Gold Council cautioned in its recent mid-year outlook published on July 3.
A sizable drop in central bank demand or widespread profit-taking by Asian investors could curtail gold’s performance, it warned.
This article has updated Raffles' gold allocation data in the 7th para.