Ruth London, national sales manager for Gold Bullion Australia, said on the latest SMSF Adviser webcast that there has been a shift in the industry over the past few years towards allocating up to 20 per cent of investment in metals in response to economic uncertainty.
“When equities and property are in a bear market like you see right now [you see this kind of shift]. For example, if you follow the property market, there’s a bit of a softening on the high-end of town in Sydney and Melbourne, and from a holistic approach [to investing] it should be that when one asset is not working in your favour, you diversify into something that’s working in a different pattern,” she said.
“Markets all work in cycles but metals tend to do preservation of wealth [better]. It doesn’t drive a dividend and other things are more fast-moving, but when currencies are devaluing as we can see in this period, gold is a perfect tool to assist in wealth preservation.”
Jodi Stanton, CEO and founder of Rush Gold, said the traditional 60/40 portfolio strategy – 60 per cent growth, 40 per cent wealth preservation – is changing.
“If you look at what’s happening to bonds now, we’re in a new market cycle so rates have gone up, prices go down and this is a double whammy, because not only have bond prices gone down, but at maturity they’re worth less because of inflation,” she said.
“This means that bonds have moved from a capital growth position to a capital destruction position. Enter gold. And so that’s where that flip has gone well for people.”
Stanton continued that what is interesting in the SMSF space is that funds are now also increasingly switching between gold and silver in their portfolio, taking advantage of the lag in silver prices.
Although gold was traditionally seen as an investment for older clients, Stanton said that is also now undergoing a shift, with more younger investors using precious metals as a diversification strategy within their portfolios.
“Advisers may have in the past suggested if their client was young, they could take more risk, and less gold, but I don’t think age has anything to do with this anymore,” she said.
“I don’t think it’s necessarily a risk appetite thing either. I think it all comes down to non-correlation. [Precious metals] used to make up 5 to 10 per cent of a portfolio, now it’s going up to 15-20 per cent. It has a lot to do with the market cycle we’re in where people are holding onto things again and we are seeing a rise in the allocation of investments to gold and other metals.”
