Seeing that inflation might be sticking around for awhile, investors are starting to pile into gold at levels not since in over a decade, according to a recent Business Insider article.
The economy is running hot and people are anticipating that rate hikes will eventually come down. This had led to gold trading sideways for much of 2023. Nonetheless, the precious metal is still up over 5% for the year.
However, as Business Insider pointed out, global investment firm JP Morgan “found that global traders have largely been underweight non-gold commodity allocations in the past year.” But overall, “their estimated exposure to the yellow metal has increased to its highest level since 2012.” Long-term gold investors have been rewarded as the precious metal is up over 60% within the last five years.
“In other words, investors’ allocation to gold looks rather high by historical standards at the moment and one needs to assume a structural increase in central bank demand beyond historical norms (due to fear of sanctions or general diversification away from G7 government bonds) to be bullish on gold,” JPMorgan mentioned.
Geopolitical factors have also been helping gold’s case as the Russia-Ukraine conflict spurred central banks to purchase more gold reserves. Domestically in the U.S., the banking crisis earlier in 2023 also saw a move to the safe haven asset. The looming threat of a recession still serves as a reason to add gold to a portfolio.
In the meantime, central banks can continue to buoy gold prices with additional purchasing.
“While before the pandemic gold ETF flows was the demand component exhibiting the highest correlation with gold prices, and thus the most important flow to watch, after the pandemic it has been central bank flows showing the highest correlation with gold,” JP Morgan added further.
Gold ETF Exposure
Investors who want to join in on the central bank buying can opt for ETFs to get exposure. One fund to consider is the Sprott Physical Gold Trust (PHYS), which is a fund that provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on an exchange.
An alternate play on gold prices via ancillary gold services like mining offers opportunities in the Sprott Gold Miners ETF (SGDM). The ETF seeks investment results that correspond generally to the performance of the Solactive Gold Miners Custom Factors Index. This index tracks the performance of larger-sized gold companies on Canadian and major U.S. exchanges.
For more news, information, and analysis, visit the Gold/Silver/Critical Materials Channel.
