A recent survey conducted by State Street Global Advisors revealed exciting news for the gold industry. Investors who already have gold in their portfolios plan to increase their holdings throughout the remainder of the year, according to survey responses. Based on these findings, we can expect significant growth in the investor demand sector of the gold market moving into the second half of the year.
The study surveyed over 1,000 investors who all have at least $250,000 of invested assets in their portfolios. Of this group, approximately one-fifth have gold in their portfolios, with the average portfolio allocation for the precious metal being 14%. Nearly half of the gold-investing traders are using gold ETFs for their market exposure, while physical gold bullion maintains the investment strategy of choice based on the majority vote.
One major finding from the study revealed the rise of younger investors joining the gold market. According to the survey, 17% of millennials responded that they have gold in their portfolios, while only 10% of Gen X and Baby Boomer surveyors stated the same. The gold-buying group of investors seems to be getting younger.
“I think that there were a number of people in my Boomer generation who were perhaps a little slow to adopt the ETF trends,” George Milling-Stanley, the Chief Gold Strategist at State Street Global Advisors, explained. “The millennials were probably the ones who adopted it with the most enthusiasm.”
Out of the gold-investing surveyors, just about seven in ten responded that they use the precious metal asset to hedge against inflation during poor economic periods. 57% of the group investing in gold ETFs explained that they plan to increase their holdings within the next six to twelve months, investing more in the rising gold industry. Only 40% plan to keep their investment at its current state, and a minor 3% plan to pull out their funds.
The gold ETF industry has been on fire this year, so these survey responses do not come as any surprise. So far this year, investors have added $1.7 billion in net assets to physical gold ETFs, allowing gold ETF flows to remain net positive for the year. We’ve reached over $500 million in assets thus far.
According to George Milling-Stanley, gold’s performance in the last year displays its exact purpose. During times of economic uncertainty and political tightening, gold becomes a safety net. When other assets fail, gold remains steady.
While gold may not always show stellar performance during such times, it outperforms its competition, which is all that matters. When considering the rising inflation rates, tightening tensions in Ukraine, banking crisis, and all other factors, gold’s 7.61% year-to-date rise should be celebrated.
“When everything else is – forgive the technical term here – going to hell in a handbasket, gold doing nothing, I think, was a relatively stellar performance,” Milling-Stanley explained.
After the collapse of SVB Financial earlier this year, gold proved a higher return rate than numerous other asset classes, including S&P 500. With inflation still above 5% for the last two years straight, we can likely expect further recession risks, risk-aversion buying, interest rate hikes, and more of the same market volatility we’ve been seeing for the last few months.
Based on all of these factors, State Street Global Advisors released three potential scenarios for gold’s mid-year outlook ranging from $1,900 to $2,300 per ounce, depending on how numerous events play out.
To start, the 40% probability base-case scenario places the trading range between $1,900 and $2,100 per ounce. The firm believes this scenario may occur if the interest rate hiking cycle pauses, causing a “shallow” recession that slows U.S. dollar growth, amplifying gold demand.
Next, State Street Global Advisors places a 40% probability into the bull-case scenario where the trading range reaches $2,100 to $2,300 per ounce. This scenario may play out if the Federal Reserve eases its strategies by cutting rates at least once this year based on deep recession risks or poor economic data, spurring severe market volatility, geopolitical tensions, tighter financial conditions, and higher gold demand.
Finally, the firm believes there’s just a 20% likelihood of the bear-case scenario where trading ranges fall to $1,750 to $1,900 per ounce amid consistent rate hikes, positive economic growth, and lightening recession fears.
Based on all of these scenarios and the investor survey, State Street Global Advisors feels relatively confident in gold’s future performance. Many investors plan to increase their holdings as they expect worsening economic conditions in the near future. As always, investors should consult their financial advisors before making any portfolio decisions.
