Asset allocators are increasing their weighting to gold in reaction to the increasingly dovish Federal Reserve seen in recent months, while the precious metal's diversification benefits and hedging also hold appeal.
Big mergers
Rory McPherson, head of investment strategy at Psigma Investment Management, pointed to the increasing number of mergers seen in the gold industry as another signal the gold price will see further upside in the coming 12 months.
Last September, Barrick Gold and Randgold Resources united in an $18bn deal to form the New Barrick Group, the world's largest gold mining business, while Newmont and Goldcorp merged in a deal valued at $10bn.
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These two unions, McPherson noted, sent a message that big corporates see value in the market and can acquire other companies "on the cheap".
McPherson, who has 2.5% in gold across the Psigma portfolios, said: "Similarly when you have senior staff, such as Barrick's executive chairman John Thornton, buying $25m worth of stock, it suggests they see big value."
Diversification benefit
However, for UK advisers, gold remains one of the most under-owned asset classes. According to Natixis' 2018 Global Barometer, of the 73 UK adviser portfolios studied, just one had any exposure to gold.
Furthermore, the research found multi-asset funds were failing to fully protect investors from the impact of volatile equity markets and did not provide the diversification advisers thought they were getting, particularly as they did not own gold.
For example, the ‘allocation asset class', which multi-asset funds fall under, had an average correlation of 0.83 - between a score of 0 and 1 - highlighting the low levels of diversification.
Matthew Riley, head of research in the portfolio research and consulting group at Natixis Investment Managers, commented: "Advisers do not own gold even though it is proven to do well in market crashes.
"It is natural for investors to seek shelter from volatile markets by diversifying portfolios, but it is clear from our analysis that, in 2018, the majority of multi-asset funds fell short and largely failed to diversify, which only added to portfolio losses."
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Marcus Brookes, head of multi-manager at Schroders, also warned constructing a truly diverse portfolio was harder than "it ever has been" and some investors were missing an opportunity by avoiding gold.
He said, as a result of the quantitative easing following the GFC, different asset classes such as bonds, equities and property have delivered broadly similar results over the past five years meaning investors need to think about diversification in a non-traditional way.
"That is where gold comes in," Brookes continued. "Gold is under-owned, nowhere near its all-time high and there are very few asset classes that can say this."
He holds exposure to gold through an ETF that tracks the gold price and the $259m Schroders ISF Global Gold fund, a mandate that invests in companies in the gold industry.
