Family offices lean into gold amid economic uncertainty
After years of being shunned by investors in search of alpha, gold has seen a resurgence in interest from both retail investors and institutional outfits since 2022, and a new survey of family offices shows that allocating towards gold is increasingly a long-term and strategic play.
2024 has been a banner year for the precious metal as it has been one of the best-performing assets, rising over 16% year to date and outpacing most major asset classes, according to the mid-year outlook of the World Gold Council (WGC).
“If you look at gold over the long term, it’s grown at around 8% a year in US dollar terms, and if you look over the last 25 years, it has outperformed the MSCI World total return index,” said Louise Street, Senior Markets Analyst at the WGC.
According to Adrian Murdoch, editorial director at Campden FB, the results of the Campden Wealth Family Office Gold survey, conducted in partnership with the WGC, showed that “many family offices” currently had gold in their portfolios. “Interestingly, more than half of those who had gold in their portfolios regarded their allocation as strategic,” Murdoch said.
This observation was confirmed by Oliver Wilhelm, Global Head of Advisory and Individual Solutions at SOLIT, who told Campden FB that gold is a “hedge against inflation as its value tends to increase when the purchasing power of fiat currencies decreases.”
Wilhelm said some investors view gold as “a form of insurance for their investment portfolio” as it offers protection against “unforeseen events that could impact other classes and, perhaps most simply of all, it is a reliable asset for preserving wealth over the long term.”
Wealthy families may choose to invest in gold as a way to safeguard their assets and pass on wealth, he added. “Investing in gold can provide wealthy families with a way to diversify their portfolio, protect their wealth, and potentially generate returns in both stable and uncertain economic environments,” Wilhelm told Campden FB.
But not everyone is keen to hold gold, the survey found, with the most commonly cited reason for opting to hold other assets being that gold has no income or cash flow.
“This criticism goes back to Warren Buffet, who said, gold has no return and therefore no chance of compounding his wealth,” explained Wilhelm. “Buffet is right in saying that gold has no yield, but he is wrong in concluding that his wealth would not have been appreciated by holding gold.”
He noted that the dollar price of a gold ounce has risen over the past 15 years, with an average value appreciation of around 9% per year.
Despite some family offices shunning the yellow metal, “the outlook for gold remains positive,” Murdoch wrote. He pointed to recent headlines, “like ‘Asia family offices pile into gold as hedge against market turmoil’ at AsianInvestor,” which he said “indicates how much family offices are joining the rush to gold to hedge their portfolios against market uncertainties both at home and abroad.”
He also noted that the WGC’s June survey of North American asset owners showed that “the top drivers to investing in gold among this audience are gold’s role as a proven diversifier (32%) and changes in US dollar strength (32%). Its diverse demand base, limited production and inflation-hedging characteristics are also positive drivers.”
Murdoch said the main question on investors’ minds “is whether gold’s momentum can continue or if it is running out of steam.”
“For gold, we believe the catalyst could come from falling rates in developed markets, that attract Western investment flows, as well as continued support from global investors looking to hedge bubbling risks amid a complacent equity market and persistent geopolitical tensions,” the WGC said.
“In short, while absolute allocation may not be large, gold remains a cornerstone piece to many family office portfolios as a diversification and wealth preservation tool, especially in view of the prevailing market conditions and fragmented geopolitical landscape,” Murdoch concluded.
Kitco Media
Jordan Finneseth
Tim Moseley