Why gold, and why now?
Why gold, and why now?

In January 2019 SingAlliance Global Investment Committee decided to initiate a position in gold into its asset allocation.

The question now arises as to the timing of our decision, and whether to extend the opportunity to open an exposure to Gold in our reference portfolios.

For a few months now, we have witnessed a resurgence in demand for precious metals: from $ 1,200 per ounce in mid-November 2018, gold recently topped the $ 1300 mark. We believe it will continue to appreciate above this level in the medium term.

This $ 100 increase was mainly due to significant inflows in both fiduciary and physical investments and was certainly motivated by the sharp fall in equity markets during the last quarter of 2018 along with the ongoing challenges faced by crypto-currencies.

One of the direct consequences has been a significant increase in assets held through passive funds (ETFs) as well as a renewed interest in physical gold by central banks.

Not surprisingly, according to the World Gold Council, the largest investors have been identified as Europe and the United States.

Seemingly forgotten for a number of years, the yellow metal seems to have been granted a second life. It is important to note that over the past twenty years, gold has generated an annual return of more than 7.5%, a level well above the overall performance of equity markets (4.5%). Moreover, its low correlation with other asset classes offers an undeniable opportunity for risk diversification.

The fact that the price of gold has been uncorrelated with the US dollar for several months represents another convincing argument. Furthermore, the yellow metal showed strength against other major currencies, which seems to emancipate somewhat from its historical visceral link with the greenback.

Finally, the average cost of production has changed only slightly in recent years and is still around $1,000 per ounce, while its marginal cost of production is close to $ 1,100. Therefore, these levels should be considered as a kind of “price floor”.

We believe it is wise to build a medium to long-term tactical position in gold, allowing us to invest with an asymmetric risk perspective in an uncertain and potentially volatile market environment.

Head of Investment Solutions,

Laurent Perusset

Recent Posts

SingAlliance Hires New Portfolio Manager

Jasmine Li Joins SingAlliance as Portfolio Manager Jasmine is a Singaporean with 12 years of experience in the investment and asset management industry in Singapore. She started her career in 2007 with Great Eastern as a Risk Management Associate. In 2009, she moved...

SingAlliance Hires Senior Relationship Manager

Emmanuel de la Vallee Poussin Joins SingAlliance as Senior Relationship Manager Emmanuel holds a Master's Degree in Economic and Social Sciences from the University of Namur, Belgium, and a Master's Degree in Banking and Finance from the University College of North...