(Kitco News) - While gold has seen an impressive 11% rally so far this year, with prices holding above $2,300 an ounce, the gains have come despite lackluster interest in the precious metal.
However, new research shows that sentiment is starting to change as money managers and hedge funds begin to pay more attention to the precious metal.
On Wednesday, State Street Global Advisors, in collaboration with the World Gold Council, released its annual Gold Perceptions Survey.
According to the research, 29% of financial advisors in North America plan to increase allocations to gold over the next 12 to 18 months, 62% report their allocations to gold are expected to remain the same, and 9% believe they will decrease the percentage of client assets invested in gold.
The survey polled 525 North American professional investors, and the results are relatively in line with the updated market forecast from State Street Chief Gold Strategist George Milling-Stanley. In a recent interview with Kitco News, Milling-Stanley raised his gold price forecast for the second half of the year, expecting the market to trade in a range between $2,200 and $2,300 an ounce.
Milling-Stanley said the key to gold’s near-term potential remains tied to the Federal Reserve’s monetary policy. However, he also noted that gold remains an attractive safe-haven asset in a world gripped by economic uncertainty.
At the same time, despite the Federal Reserve’s aggressive monetary policy stance, which supports higher bond yields and a stronger U.S. dollar, Milling-Stanley noted that the survey shows investors are reluctant to give up their gold.
“While interest rates are widely expected to be cut during the next 12 months, advisors’ allocations to gold have remained fairly consistent,” said Milling-Stanley in the survey report. “This suggests that a growing majority of advisors are using gold as a core asset for long-term investment horizons, which is where it shines in the context of a well-balanced, diversified portfolio.”
The survey also showed that gold is playing a much more active role in North American portfolios. Nearly nine out of 10 advisors surveyed said they have some allocation in the precious metal, up from 69% in 2018 and 76% in 2019.
The survey also shows that while more investors are holding gold, their allocations have significant room to grow. Of those investing in the precious metal, 32% of respondents said they held less than 1% of total client assets in gold; 56% said they have between 1% and 4.9% of their assets in gold, and 13% said they hold more than 5% of their client assets in the yellow metal.
"The recent gold price rallies have piqued investor interest, and with good reason amidst today's economic and geopolitical uncertainty," said Joseph Cavatoni, senior market strategist at the World Gold Council. "Many investors and advisors alike used to look at specific factors, like interest rates and the dollar, in isolation when considering an allocation to gold. But as a global asset with a multitude of both strategic and tactical drivers that are supporting demand, a strong case can be made for gold in the year ahead.”
Addressing the question of why advisors are investing in gold, 48% said the asset is a proven diversification tool during periods of economic uncertainty, while 36% pointed to its proven role as a long-term store of value. Finally, 35% of managers said that it was because their clients expressed a desire to invest in gold.
As to why funds avoid the precious metal, 54% said that it doesn’t pay a coupon or dividends, 28% said that its intrinsic value is difficult to calculate, and 26% viewed it as a speculative asset.
