Gold has a number of tail winds behind it, sources said, including the decline in the U.S. real interest rate.
“We are in the midst of a secular bull market for gold,” said Joseph M. Foster, New York-based portfolio manager and strategist for the gold and precious metals strategy at VanEck.
Gold broke out of a four-year stagnation, hovering around $1,350 per ounce, when the Fed started cutting rates last year, and has “broken out further with the pandemic,” Mr. Foster said.
In the past month, dollar weakness has also been a “very positive development” for gold, Mr. Foster said. The dollar has dropped 1.2% vs. the euro for the month through Aug. 20.
Institutional investors in the U.S. in particular are showing interest in gold, Mr. Foster said, but that has not yet translated into inflows for the firm. VanEck ran $23.5 billion across gold-related strategies as of June 30.
However, data from EPFR show 13 weeks of institutional net inflows to gold across global strategies, including equities, over the 15 weeks ended Aug. 12. Eleven of those weeks recorded net inflows of more than $1 billion each.
Year-to-date through Aug. 12, net inflows totaled about $38.1 billion, compared with about $11.7 billion in all of 2019 and about $7.7 billion in 2018, the data show.
Others adding gold to their portfolios include hedge fund Bridgewater Associates LP, which increased its gold exchange-traded fund holdings by almost $400 million this month, according to a 13F filing Aug. 12.
And Berkshire Hathaway Inc. added gold to its portfolio in the shape of 20.9 million shares of miner Barrick Gold Corp., valued at about $565 million, according to a 13F filing dated Aug. 14. CEO Warren Buffett has in the past cautioned against investment in gold because it is not productive like a company.
“Tactically, there are two reasons investors have been piling into gold — the safe-haven attribute, being the idea that equity markets or risk assets generally have sharp drawdowns (while) gold holds its value” and wealth preservation, as accommodative monetary policy erodes the value of currencies, said Mobeen Tahir, London-based associate director of research at WisdomTree U.K. Ltd.
Strategic reasons for holding gold are as a diversifier, a way of adding value to the portfolio — which particularly is the case right now as the price hits new highs — and as an inflation hedge.
For the $2.5 billion City of Austin (Texas) Employees’ Retirement System, a $5 million gold futures allocation, run by NISA Investment Advisors LLC, was made for inflation purposes.
The new allocation was approved in March “as a potential hedge against the potential risk of a stagflationary environment similar to what the United States experienced during the 1970s,” CIO David Veal said in an email. “We believe the risk of such a scenario is currently low but rising, which is why this allocation was initiated at a small (about 0.2% of the fund assets) size with room to increase over time should circumstances warrant.”
Since the risk of stagflation looks to be present in economies for a while, “this allocation is indeed viewed as a long-term part of our efforts to maintain a well-diversified portfolio that delivers strong returns across different market environments,” Mr. Veal said.