Despite the recent outperformance in gold, Wagner argued that gold prices have also broken out of long-term down trends and may have more room to run.
“Since 1972, when gold was freed from price restraints, gold bull markets have averaged 94.8% and consumed an average of 555 days,” Wagner said. “The present rally has seen an increase of just 27% over 245 days. So in price movement we are just over 28% of the way through a normal bull rally in return and 44% of the way based on time.”
Looking ahead, 60% of advisors surveyed on the webcast are looking to increase gold allocations ahead, with 39% saying they will stand pat.
Financial advisors who are considering allocating a portion of their client portfolios into gold may adjust their traditional 60% stock and 40% bond split. Through their 43-year study, Wagner contends that the best risk-to-reward combination included a 25% allocation to gold, with any percentage allocation to gold up to just over 45% outperformed a simple balanced portfolio on a risk-adjusted return basis.
However, Wagner warned against gold mining stocks, labeling gold producers as an “imperfect proxy for gold bullion.” Gold mining sector reflect the underlying fundamentals of the individual miners ad are much more volatile than bullion.
Consequently, investors may consider something like the Gold Bullion Strategy Fund (QGLDX) to gain exposure to gold price movements. QGLDX is the first and only no-load gold bullion fund available to non-exchange traded fund, mutual fund investors. The fund tries to reflect the daily percent change in gold bullion as determined at the end of each day. In contrast, other gold-related funds primarily track gold mining stocks.
SEE MORE: Record Investment Demand for Gold ETFs
QGLDX may utilize near-term futures and gold ETFs to capture the price movements of gold. Additionally, the fund may include short-term bond allocations further support stable pricing and offset the fund’s expense ratio.
Moreover, unlike other gold investments, QGLDX may offer some tax benefits. Investors will not have to fill out the onerous K-1 form and will not be subject to the collectibles tax rate associated with other physically backed gold holdings. The fund is taxed as a normal mutual fund with the usual ordinary income, with the usual capital gain or loss tax treatment.
Financial advisors who are interested in learning more about the bullion market and gold as an asset class can watch the webcast here on demand.