Striking Gold: Opportunities in Gold Investments

Gold is one of the oldest and most renowned precious metals in the world. Coveted for its rarity, it has been the focus of international monetary systems, religious veneration, and mythological folklore. El Dorado may not exist, but our interest in gold has rarely wavered.

However, despite its infamy, gold had become an archaic and outdated form of wealth for many modern economists and private investors, particularly after the disuse of the gold standard internationally and with the gradual shift towards a cash-based, and now cashless, society.

However, we are currently seeing a resurgence in gold and a burgeoning global demand.

According to an Intelligent Partnership survey, over the past 10 years, gold has outperformed almost every other asset class with an average return of over 25% per annum.A 2020 survey of global investors highlighted the desire for gold investments, with 63% saying they had a strong desire to invest in gold but only 2% of investors admitting to actually owning investment grade gold.

Now, with the impact of Covid-19 on global markets and regional turbulence, should we be looking to gold investments? And importantly, what should high net-worth individuals be looking for when investing in gold?

The modern gold market:

In combatting its archaic perceptions, gold has continued to play an incredibly substantive role in the global economy for both private investors and central banks since the discontinuation of the gold standard. As a wealth preserver, gold has one of the most equitable value rates of all physical asset commodities.

GoldHub, a leading gold market research company, states that the demand for gold exchange-traded funds (ETFs) surpassed 1,000 tonnes in 2020 and that the global demand for gold reached an all-time high of 4,355 metric tons; a figure which has been increasing steadily over the last decade.

Robin Newbould, Head of Execution, Advisory, and Precious Metals at Ravenscroft, is anGuernsey-based investment professional with over 20 years' experience in gold commented on the importance of paying attention to central banks and their recent investment behaviours.

"It is no coincidence that since 2008 net buying activity by central banks, who are big players in the market, has been steadily increasing as they have chosen to invest significant sums of government money in gold; in fact they have never bought more net purchases in gold than they did in 2018 and 2019."

Robin's view is equally backed-up by GoldHub, who reported that net purchases by central banks in gold increased by 12% from 2018 to 2019, as they added to their gold reserves.

As a self-confessed maths lover, who enjoys crunching the numbers, Robin's firm belief is that making an asset allocation to precious metals such as gold is an increasingly smart move for high net-worth individuals. Especially when you're looking at the macroeconomic picture of a global economy with zero to negative interest rates which widely impact cash and bond investments.

As a physical investment asset and precious metal, the value and equitability of gold is dependent upon its supply chain in mining, transportation, and refining.

Christophe Numa, Managing Director at Bunker Group Gold & Silver, based in Singapore has spent over 10 years in the wealth management industry, and has a focus on precious metals investment. Notably, Christophe has been working with the Bunker Group to disrupt the market by connecting investors directly to the world's most reputable refineries in order to buy physical precious metal at the safest and most competitive prices.

"The price of gold is in the logistics" Christophe says, "this is important to remember."

As a physical asset, unlike cash premiums and bonds, gold relies upon a robust supply chain and international logistics operation which is a substantial aspect of the global gold market.

Gold as a safe haven:

One of the most compelling reasons for high net-worth individuals to invest in physical gold bullion over ETFs, cryptocurrencies, and bonds is that gold is both historically and contemporarily regarded as a safe haven asset. Meaning that,during periods of uncertainty, the value of gold has remained stable (if not increased) and protected its owners' investment.

Mark O'Byrne, Research Director at GoldCore in Dublin, Ireland, caters to investors, HNW, UHNW, family offices, institutions and specialises in helping clients invest in and own gold in the safest vaults. Mark holds a BA in History, specialising in Greek and Roman Civilisation, allowing him to offer a formidable introspective examination of gold as a safe haven asset.

"Gold is a safe haven asset and has historically been seen as a store of value, so it really helps people to protect their portfolios and protect wealth. There is a lot of academic evidence as well from independent asset allocation expert that gold is this safe haven, when typically stocks and bonds fall, gold tends to rise over the medium and long term."

Mark adds that ETFs offer competitive operational costs, hedging, and give more options to high net-worth individuals in terms of investment but outright owning the underlying physical asset is more operable, reliable, and a lower cost investment in the long term.

Robin points out that in comparing ETFs to gold bullion investment that:

"From a cost point of view the transactional side of dealing in physical will be higher ordinarily than ETFs but then, on the annual cost, normally you make a saving in holding physical bars in a vault because you're not paying for the structure of the ETF and its management."

For many investors, the value in gold bullion can be found in the safety it provides. Robin continues:

"I think clients want to know that they've got their 10 kilograms of gold and it's that corner of their wealth which isn't moving and has a zero-counterparty risk. Those investors who use our secure vault take a lot of comfort in knowing that the actual gold bars which they bought are there whenever they want to see them or need them."

Storing gold:

When investing in gold bullion, another key consideration is storage and particularly, it's worth considering: How can I access my storage location? And how quickly can I process gold investment transactions?

Michael O'Kane, Chief Operating Officer for New Zealand Bullion Depository, has spent the past 25 years working in the finance and treasury sectors - initially as an IT manager and then as an FX dealer. Since 2011, Michael has spearheaded New Zealand's only specialist Gold Bullion storage facility catering to high net-worth clients and investors globally.

Michael believes that "Safety, Security, and Stability" is what investors are looking for in storing their gold and remarks on international gold storage that:

"Ensuring comfort for the client, for some people, makes it that easier to hold wealth at a longer distance than they normally would"

Joshua Rotbart, Managing Partner of J. Rotbart & Co, a Hong Kong-based bullion house providing solutions for high net worth individuals and families, asset management firms, and private banks, added to the conversation that storage preferences among high net-worth individuals are often less about marketability but client perspective on safety.

"When it comes down to where to store gold, it's a matter of comfort for the client; it's the perception of the risk rather than the risk itself"

Ensuring you have a robust trading environment is essential and as Joshua notes, moving gold is a pretty easy and transparent process, which can be done professionally and swiftly.

Mark, building upon his earlier insights on gold as a safe haven investment, said:

"Gold is only a safe haven asset if you can access it and you can buy it and see it in an efficient manner"

Moreover, Mark pointed out that clients often favour countries with a high level of political and economic security for gold storage such as Switzerland and Singapore.

The Impact of Covid-19 on gold markets:

As the impact of Covid-19 becomes increasingly evident throughout the world, it's unsurprising that many investors are beginning to revaluate their portfolios and whether it's a sensible time to consider physical asset investments, such as gold.

As we have noted, when currencies fluctuate it corresponds with the value of bonds and shares decreasing, however, the value of gold continues to rise and has been doing so steadily for the last few years.

Christophe explains that principally the difficulty posed by Covid-19 on the gold market has been in logistics and the supply chain.

"What I realised pre-crisis what Covid could mean for the gold industry is the difficulties it could prove for the supply chain. Gold production and mines are still running, so the gold is there but, for example, during the early periods there were no planes running, so you could not transport the material to the refineries easily."

During the pandemic, Christophe explains that clients wanted their gold to be directly sent to them from the refiners for personal storage which then caused a backlog at the refineries who couldn't meet the transportation demands. Therefore, an element of the disruption has been down to changes in investor's behaviour, rather than turbulence in the market.

Joshua interestingly highlights how clients have been increasingly looking to geo-diverse storage options, having gold in different places and having it closer to home.

"Some clients want to be able to get in a car and drive to their gold, see it in person, confirming to themselves that it's real. Throughout this situation we've seen many of our client's wanting that peace of mind, being able to have personal, physical access to their gold."

Commenting on regional gold storage, Michael noted that due to the political stability of New Zealand's leadership and relative isolation from Covid-19, both high net-worth and ultra-high-net-worth clients have felt comfortable continuing to store gold in New Zealand, knowing that services are continuing to deliver due to an absence of regional turbulence.

Therefore, in the current climate, a geo-diverse investment portfolio, invested in multiple regional markets and having a variety of potential storage options has helped to mitigate the impact of Covid-19 for investors, and despite the disruption, gold has remained stable, further demonstrating its status as a safe haven investment for high net-worth individuals.

Expert advice for first-time gold investors:

All the precious metals experts we spoke to stressed the importance of working with a reputable and trusted gold company as an essential first step for all gold investors. It pays to do the research and know whom you are dealing with. As Joshua commented:

"Whenever there is a gold rush, we see gold companies sprouting up like mushrooms and as soon as there is a quieter year for gold, they are all gone."

Michael equally mirrored this advice and added:

"It's important to think about the company you are storing with and that you're comfortable with them, make sure they understand and research their background, what is it that are doing? And why are they doing it?"

For first-time gold investments, it's worth considering:

  • Bar certification - Ensure you are purchasing licensed and certified bars. Christophe recommends LBMA bars as they are world-renowned, making them easier to trade.
  • Bar integrity - Ensuring you are getting what you pay for and that the bars are certified 99.5% purity. One way to ensure this is to consider buying bars direct from the refineries.
  • Pricing - Understanding the price of gold is the spot price plus a premium, which any good company will inform you of and is a good way to check if they are trustworthy.
  • Storage - Making sure your gold is stored in a certified vault and exploring your options when it comes to geo-diverse storage. Joshua advises "don't go in too niche on your storage options".

Mark adds that gold investment compliments any diverse portfolio, not only is it a safe haven asset, but it opens up a whole variety of opportunities for investors.

"You have to look at it holistically, look at the asset allocation and talk to the experts in the field about diversifying a portfolio with different precious metal providers, different vaults, different locations; the aim is to get that mix right."

And in conclusion, Robin reassures potential investors that "you haven't missed the boat on this fantastic opportunity."


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