Going for gold - allocation strategies among uncertainty

Panel

• Yingyong Chiaravutthi (Frank), head of investment, Prudential Life Assurance Thailand
• Derek Mok, chief investment officer, Fubon Fund Management (Hong Kong) Limited
• Yang (Zhifan), portfolio manager, head of multi asset and solutions, ICBC Asset Management (Global) Company Limited
• Jaspar Crawley, head of distribution APAC, World Gold Council

Gold typically only makes up around 0.8%-1% of global investment portfolios, and objections to investing in gold come in a range of forms; for some investors, the lack of coupon is a problem, while others believe gold lacks liquidity. Others believe that gold is just too volatile. And yet gold is prized by the central bank community, whose premise for buying gold is to control inflation and promote economic stability.

Pricing in a dynamic environment

Panelists weighed in on what can be expected of the price of gold in different macro scenarios, such as during periods of inflation vs. deflation, and how might investors be able to take advantage of some unique correlations.

As noted by the panel, many people might think of gold as a commodity, and yet the reality is more nuanced. For example, the price of gold behaves in different ways in different market conditions, as compared to commodities - which can be useful for diversifying portfolios.

The panel also discussed prospects for the price of gold if interest rates continue to stay low, and other scenarios which are likely to affect the price of gold significantly, such as recent announcements of the availability of Covid-19 vaccines and other ongoing developments.

Additional key discussion points included:

• For insurers, gold is often an insurance-linked product (ILP), requiring unique treatment
• From an institutional view, if gold is seen as an asset class, as opposed to an equity hedge, it can be difficult to integrate into multi-asset funds
• For asset managers, gold is a part of the asset allocation mix, and needs to be part of a framework for both near and long-term returns; it can serve different purposes in various market conditions

As part of our interactive live polling, we asked our audience of top global investors about their preferred ways to invest in gold whether via ETFs, physical gold, or investing in mining; we also surveyed our audience’s allocation to gold and discussed with the panel what considerations to bear in mind when deciding how much gold to own.

Not your typical asset

Currency fluctuations were also touched upon, particularly noting that gold sometimes has the nature of a currency; noting the unique demand drivers of gold which many investors find hard to understand - particularly when facing future scenarios where interest rates may rise at the same time as a risk-on environment dominates. As Jaspar Crawley (World Gold Council) explained, gold pricing has a dual nature with two main drivers that interact with one another - whereby around 40% of gold demand is consumer demand, given that gold is a product in itself, and a similar percentage is driven by investment demand, or desire for wealth preservation; a core concept that needs to be grasped when looking at gold valuation and modelling.

“It can trade in different ways in different market conditions,” he explained. “While many think of gold first and foremost as a hedge, you can and should expect gold to perform well during times of economic growth, but also during times of distress.”

In an expansionary environment, the price can go up, but also goes up when markets drop - therefore creating unique correlations in different scenarios. As such gold can indeed be useful both as a hedge and as a strategic long-term asset.

Watch the full webinar here to learn more.