With the gold price hovering at all-time highs, some money managers are adding the precious metal to portfolios and say they are increasingly fielding calls from interested institutional investors.
While gold often occupies a small part of multiasset and other portfolios as an inflation hedge, managers now are using gold for other reasons, such as dollar weakness and wealth preservation.
The gold price hit a high of around $2,000 per ounce this month. Following a $100 drop in one day — the biggest since April 2013 — and other episodes of volatility, it was trading at around $1,938 per ounce on Aug. 21.
Despite the volatility, some money management executives expect the precious metal to remain around the $1,800 mark — with some predicting it could even break through $3,000 this year — buoyed by uncertainty surrounding the COVID-19 pandemic.
As such, they are keeping gold in their portfolios at higher-than-usual levels.
Pictet Asset Management holds a core gold exposure in its multiasset strategies of between 3.5% and 5%. "Through this pandemic, it's been at 5%," said Andrew Cole, head of multiasset London. The firm manages $26.4 billion in multiasset strategies.
"We supplement (that allocation) with some exposure to gold mining stocks … as they're a geared version of gold," Mr. Cole said. "If we weren't so keen on equity we'd probably have more (gold) … which is why we have some gold mining stocks in addition to bullion."
Vontobel Asset Management AG's commodities team has about a 10% to 15% passive allocation to gold as standard, "but since the end of Q1, we have roughly a 20% tactical (allocation)" in addition to the 10% to 15% standard in a basket of gold, silver, platinum and palladium, said Michel Salden, head of the commodities team in Zurich. That brings total exposure to precious metals to close to 40%, Mr. Salden said.
Increased exposure in 2020 is driven by gold. "The last two or three years, we were more active in the small or niche markets in precious metals — silver, platinum and palladium."
That position was reduced a bit with the volatility and U.S. dollar strength of the first quarter, but since then executives have encouraged clients to go long on real and cyclical assets, like precious metals. "We've said do it broadly because we were positive on gold and silver, mainly from the central bank money-printing trade. Our thought and opinion was (this) would translate to lower real interest rates … and what we have traded for years is that (there is) a very strong correlation of precious metal against real interest rates," Mr. Salden said. Among other strategies, Vontobel runs about $600 million in a broadly diversified commodities fund.