As investors look for ways to diversify a traditional equity and fixed-income portfolio in the new year, many are considering alternative assets like precious metals-related ETFs.
Maxwell Gold, director of investment strategy at ETF Securities, argued that the Goldilocks economy in 2018 may benefit gold.
“The global economy continues to chug along in a ‘just-right’ goldilocks scenario with steadily rising inflation and synchronized growth among developed and emerging economies. This backdrop has benefited equities over gold in 2017 while also resulting in stretched equity valuations and record low volatility. As the economy seems to be on cruise control, this complacency may see the probability of unforeseen risks disrupting the status quo increase. This may result in heightened demand for gold as a portfolio risk overlay in preparation for a correction or slowdown particularly while gold remains relatively cheap,” Gold said in a research note.
Additionally, an expanding global economy could also bolster consumer demand for jewelry and electronics, which could provide a floor for gold. Meanwhile, rising inflationary pressures will also rise in an expanding economy.
The poor man’s gold may also regain its luster as an improving economy would also trigger increased industrial demand for silver.
“Rising growth, manufacturing, and industrial production coupled with rising producer inflation should provide a tailwind for silver demand. Silver supply is expected to constrict as miner capital expenditures continue to fall. Adding in new sources of demand such as solar panels and its cheapness to gold are the key rationale for why silver’s day in the sun may still be on the horizon in 2018 despite current negative sentiment,” Gold said.
Investors who want to use precious metals as a hedge and even a long-term play may consider a number of physically backed metals-related ETFs as a way to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
For more information on the metals space, visit our precious metals category.