But while some investors may be reacting to the current environment, it’s clear that a significant number are standing their ground. While gold has historically been seen as a potential cash alternative in periods of economic uncertainty and a hedge against inflation concerns or a weakening dollar, many invest in gold as a long-term holding due to its diversifying properties (gold has historically shown little to no correlation with other major asset classes, including commodities). In fact, while my colleague Russ Koesterich acknowledges that gold typically performs relatively well in a low rate environment, he also advocates a small (1-3%) strategic allocation to gold – regardless of where rates go this year.
The bottom line: Whether you’re a tactical or strategic investor, gold ETPs can give you an easier, more flexible way to access gold than was previously available. Before these products came along, retail investors could only gain exposure to gold through the ownership of things like bullion, jewelry, coins and gold certificates, or by investing in mining stocks and precious metal mutual funds as a proxy.
In fact, gold ETPs now represent the fourth largest “institutional” holder of gold in the world. And with markets like China looking into launching their own versions, we’d guess that it will take more than just a few bad months to reverse the incredible momentum this category has built up.
Global gold ETPs: Annual AUM history
Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock.