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Millennials And Gold: First A Car, Then A House ... And Then Gold

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Millennials And Gold: First A Car And A House, Then Some Gold

(Kitco News) - Millennials will become the largest generation this year, even surpassing the Baby Boomers, which makes them the next target demographic for the precious metals market. But, how do millennials feel about gold and why are they not investing more?

It is not due to gold’s lack of shine that has millennials looking away from the precious metal as a viable investment option, according to analysts, who instead point to lack of excess capital, describing an investment in the precious metal as a luxury for the younger generation.

“The standard advice is to have 5-10% gold exposure in your portfolio, but the problem is that millennials don’t really have a portfolio, they don’t have a sufficient enough nest egg. What does 10% look like for someone who is trying to save for a house?” Pepperston head of research Chris Weston told Kitco News.

Millennials are just looking for a quick buck, Weston added, noting that they prefer speculation. “They’ve got a high-risk tolerance; they are not looking to have property, stocks, fixed income, and some bond exposure. They are just looking in a very concentrated group of markets that have high risks and high returns,” he said.

Basics First, Safe-Havens Second

It is not that millennials don’t like gold, said TD Securities head of global strategy Bart Melek, adding that for the younger generation it is more about saving up for their first house or a first car.

“They have massive debt coming out of university. If you look at their participation in the 401ks in the U.S., they are not participating there either. They are not buying cars or houses as well. And it is not because they don’t like houses,” Melek said.

“From a policy perspective, we need those young folks trained in skill sets that are marketable … and get them into jobs that actually pay benefits or stocks, so they are not in precarious work their entire life. That is the biggest factor here. Not so much that they don’t like gold,” he explained.

Overall expenses are also harder to keep up with for millennials due to high debt levels, said RJO Futures senior market strategist Phillip Streible.

“Debt levels are near record highs with school costs and general expenses heightened. But, you should always put away 10% of your paycheque into some type of retirement-type asset your entire life,” he said.

Some Statistics…

Millennials (ages 20 to 35) are expected to rise to 73 million this year, outnumbering babyboomers (ages 52 to 70) who are expected to decline to 72 million, for the first time, according to Pew Research Center.

And some of the statistics around millennials’ retirement savings, property ownership, and debt levels are staggering, but not that surprising considering majority of them entered the workforce around the 2007-08 financial crisis.

Retirement savings: About 66% of people between the ages of 21 and 32 have nothing saved for their retirement, according to a report published by the National Institute on Retirement Security in 2018 based on the U.S. Census data collected in 2014. Only one-third of millennials are actually putting some money away for retirement, with most reporting less than $20,000 on their accounts.

Homeownership: Owning a home is also out of reach for many millennials. Last year's report from the Urban Institute revealed that homeownership for people ages 25 to 34 is 8 percentage points lower than baby boomers at that age and 8.4 points lower than Generation X.

Debt levels: On average, each millennial is $42,000 in debt, according to Northwestern Mutual’s 2018 Planning & Progress Study, with credit card balances taking up a quarter of that debt, followed by student debt.

Spending: Millennial spending is also on the decline, with the Gallup poll form 2017 revealing that people ages 18 to 29 are spending nearly $20 less every day than their counterparts roughly 10 years ago. Items most affected are the basics, including clothes.

Car Ownership: About 84% of older millennials — those born in 1980s — own cars. But, when it comes to the younger millennials, fewer than half purchased their first vehicles, according to statistics from AutoTrader.com.

Love Affair With Cryptos Gone Wrong

A lot of millennials got burnt in the crypto market, which was driven by ease of investment, new blockchain technology and fear of missing out (FOMO), analysts pointed out.

“The younger generation is so technology-focused and they fell for the trap of buying so heavily into bitcoin and cryptocurrencies that they overlooked other investments like metals that have stood the test of time,” said Streible.

This crypto craze, which began in 2017, has taken a significant amount of money away from gold, added Streible.

“Bitcoin’s and all those alt coins’ bubbles bursting on them should have been a wake up call that they should look at gold and silver to be added to their portfolios as an alternative currency.”

Why Gold Is Attractive

Gold can make a very attractive investment for millennials, especially considering that some of them lost some money in the crypto craze, analysts said.

One of the important pro-gold arguments is that the precious metal has a long history of preserving wealth.

“They need to know that gold is an asset class that is nobody’s liability, unlike pretty much anything else, and it stands the test of time. And since they are young, almost by definition, the implication is that they need some stabilizing asset class in their portfolios over the long-term to preserve wealth and keep stability,” Melek said.

The strategist added that over the last few decades gold has shown to outperform many other asset classes. “When you look 30 years ago, gold is a lot more valuable today in spite of ups and downs we’ve seen,” he said.

Second, gold serves as a unique protection mechanism against other risks in the marketplace, which can benefit the more high-risk prone millennials.

“If you compare gold to other assets classes it merits consideration in many investor portfolios simply because it behaves differently in times of crisis. It is a unique asset class that adds diversification benefits,” said RBC Capital Markets commodity strategist Christopher Louney.

Also, it is relatively easy to get exposure to the gold market these days without having to worry about storing and ensuring any physical metal.

“There are more opportunities to invest in gold now. There’s been a lot of new low-cost entries into the gold ETF space. There are more ways to access gold as an investment. Over the longer term, it will provide an opportunity for investors to invest,” noted Louney.

Finally, gold attracts certain personality types that fit millennials, added Weston.

“Gold is attractive to some of the anti-fiat currency type of investors, which is what a lot of younger generation people liked about blockchain in the first place. So, if you don’t like what the central banks are doing to the world, if you don’t like what’s happening to currencies over time, then gold is probably a good place to be,” he pointed out.

There is also an interesting distinction to make between millennials in the West and the rest of the world, noted Refinitiv director of metals demand Cameron Alexander.

“If you saw a currency collapse … then buying gold is protection against weakness in a currency. We’ve seen that this year in places like Iran and Turkey. In the developing world, we’ve seen that buying gold you are actually protecting your assets. But having that translate to the Western world is a difficult task,” Alexander explained.

A similar diversion was highlighted by Mitsubishi analyst Jonathan Butler as well, who examined China’s millennials and their spending patterns.

“If we look at sectors of the population with similar incomes and careers in China, there is a lot of competing products for the millennial dollar ranging from luxury goods, to cars, to real estate, which in China, were not there 15 or 20 years ago. That’s true to a degree in the West, although things are perhaps a little different there,” he noted.

What Else Can The Precious Metals Space Do?

More technology infused apps and trading mechanisms would make the precious metals market stand out to the tech-savvy millennials, analysts pointed out.

“Millennials would get more involved if somehow there was a GLD type of product within a coin-based application,” suggested Streible.

It is all about making gold products easily accessible for younger generations, added Alexander. “And that might mean through apps, which would make it easy for people to trade in and out and to use gold as a way of payment,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.