Going for Gold

Asia has long had a love affair with gold, but never has it been so straightforward for the region's wealthy and the wealth managers they work with to buy and hold physical gold. INTL FCStone is delighted to have teamed up with Hubbis to support this White Paper on the evolution of physical gold markets and bullion as a long-term investment opportunity for Asia's rapidly growing ranks of high net worth (HNW) and ultra-HNW individuals and families.

INTO THE CRYSTAL BALL - DOES GOLD HAVE A SHINY FUTURE?

There are plenty of divergent opinions surrounding the outlook for gold in 2018. The experts canvassed by the LBMA report a wide variety of factors that will influence the gold price this year. Central to theories is the strong global economic growth that will ultimately lead to inflationary expectations and rising interest rates.  Some experts explain that if global growth and interest rates both rise, and geopolitical problems also escalate, it could lead to corrections in the mainstream asset classes and lend support to gold as a haven trade. If interest rates rise sharply, without inflation in sight, the potential return on gold could look less appealing.  

However, if investor fears over unstable global financial markets drive growth in portfolio allocations to gold, that might offset any intrinsic weakness in the gold price. Other analysts in the LBMA report indicate that gentle US dollar depreciation in 2018, as the Fed stays behind the anticipated inflationary curve, will also help gold prices. 

Gold mine supply retreated this year in the wake of lower investment and rising costs. Mine production is forecast to decline by 1.3% within the next 2 years. This coupled with consistent gold demand could bode well for gold prices.

GOLD SET TO RETAIN ITS SHEEN

In 2017, 52% of the world gold consumption was from the jewellery sector, over 25% from investment bar and coin demand, 9% relating to both central bank demand and technology/industrial processes, with ETFs and similar products making up the smallest portion at almost 5%. India and China account for more than 50% of current global gold demand, with China remaining the world's largest bar and coin market, registering 8% growth in 2016.

While globally gold still only makes up less than one percent of investment portfolios, the annual volume of gold bought by investors has increased by at least 235%over the last three decades.  In addition, following the 2008 financial crisis, central banks concluded eight consecutive years of net purchases, further supporting the growing investment demand. 

THE CASE FOR GOLD IN ASIA'S HNW PORTFOLIOS

With regard to preservation of wealth, gold has an immensely long track record; providing a hedge against inflation, geopolitical risks, natural disasters and other crises.  

Currently private banks and wealth advisers might typically advise their HNW clients to hold about 3-5% gold in their investment portfolios.  

While an ETF provides gold exposure and is an excellent tool for short-term trading, physical gold is preferable for medium to long-term investment as it is highly liquid, lacks counterparty risk and affords investors more flexibility. Unlike property or stock funds, physical gold is a highly efficient wealth management tool for estate planning. In banks client's liquidity can also be maintained via leverage. The banks may lend up to 80%against the value of the gold holdings and will probably charge a marginally higher interest rate than for other loans backed.  

ASIA'S EVOLVING GOLD MARKET INFRASTRUCTURE

Operating as 'ecosystems', Asia's precious metals market brings together LBMA refineries, bullion banks, wholesalers, traders and logistics firms into a cohesive gold marketplace. Significant markets serving Asian demand include China, Hong Kong, Japan and Singapore. Asia is a thriving hub for bullion production with more than 26 registered LBMA gold refineries across the region. Precious metal logistics firms further enhance the bullion trading ecosystem by helping to verify the integrity of the bullion that flows through their doors. With the dramatic growth in the infrastructure in Asia, buying and storing precious metals has become far simpler, cheaper and more efficient.  

MOVING PRECIOUS METALS INTO THE MODERN WORLD

The rapid rise in the gold market's infrastructure in Asia in the past decade is now being followed by increasing technology, aimed at driving efficiency and transparency within the bullion sector, as well as making the purchasing and storage of gold more accessible.   

Some innovative digital platforms provide free, direct and real-time access to precious metals inventory across the world, connecting Buyers to LBMA refineries, bullion banks, wholesalers and logistics firms, without the need to open multiple accounts. 

WHY INVESTORS SHOULD CONSIDER BRINGING BULLION INTO THEIR PORTFOLIO

A safe haven asset, bullion will always maintain value due to its limited supply and intrinsic value. A hedge during periods of inflation, bullion reduces risks in an investment portfolio and is a great asset for wealth preservation.