Juan Carlos Artigas heads investment research for the World Gold Council, managing the global investment research team an offering insight as to the positioning of gold in the investment world. He recently discussed using gold as an investment strategy with CFA Institute, and had a few interesting things to say. Let’s take a look at some of those.
Artigas mentioned that gold is centered around risk management and capital preservation. It is a liquid asset that allows investors to diversify whether the stock market is performing well or poorly. He also cites gold’s many uses as benefits to investors. Specifically, about 60% of overall gold demand is for jewelry and technology uses. In other words, more than half of the demand for gold is not directly tied to stock market or economic trends, but rather, to practical uses for the commodity. Investors make up about 33% of overall demand, and the rest comes from central banks and smaller miscellaneous areas. So the demand is spread out into multiple segments and verticals, and as a result, is not nearly as prone to economic meltdowns or negative stock market cycles.
Artigas then talked about how to add gold to your portfolio. The options include physical gold bars, coins, and bullion, gold-backed ETFs, mining stocks, futures, and over the counter options. Each offers benefits, depending on what type of investor you are and what your goals are. For long term investors, and for those who wish to keep their investment separate from the stock market, physical gold is typically the best bet.
When asked about the price drop for gold this year, Artigas gave several short term reasons: an improving US economy and speculation about tapering (which was just confirmed in December), declining global inflation, a showdown with other emerging markets like China, and speculation of European central bank gold reserve sales. All of these factors have led to a 25% drop in the price of gold in 2013, the first annual price drop in over a decade.
Artigas also listed a few long term factors which have started and will continue to balance the price drop: organic demand growth, retail consumption, central bank reserve policies, and restricted supply. Overall Artigas is positive on the future of gold, especially in the long term, and suggests investors balance portfolios with physical gold.