Interview with John Reade, Chief Market Strategist of World Gold Council.
There is so much momentum in the gold market right now. Other than oil, it is the most traded commodity. Even sub-par gold producers are turning a tidy profit in such a favourable bull environment. Moreover, there has been plenty of speculation that this gold cycle could go on for a lot longer than many are expecting. With that in mind, we decided to get in contact with the Chief Market strategist of the World Gold Council, the global authority on gold, formed 34-years ago.
The World Gold Council’s purpose is to provide market development organisation for the gold industry, stimulating and sustaining demand for gold and providing industry leadership for the entire gold sector. Specifically, the World Gold Council is tasked with increasing the visibility of gold to investors. It is owned by 26 of the world’s largest and most important mining companies around the world.
Matthew Gordon talks to John Reade, 26th June 2020
We recently interviewed EB Tucker, who chastised gold equities and ETFs as dying investment classes in an extremely inflated stock market. Instead, he endorsed physical gold as the ideal candidate for consumer investment in the current climate, because it has no liability and won’t be affected by a potential financial system reset if interest rates turn negative.
Reade provides a similar assessment of the prospect of investing in physical gold. He gives 4 key reasons why physical gold is an investment class conducive to a profitable portfolio:
- It is a source of portfolio performance.
- It is liquid.
- It is a source of returns.
- It is a means of diversification like no other.
The World Gold Council does not produce its own global gold forecasts; instead, it consumes the forecasts of others to aid its knowledge of global market drivers, mechanisms and activity. Gold is strategically important for investors, and this is a permanent trait. Gold has been a source of returns since 1971 when gold was uncoupled from the dollar. These returns have similar to or better than most other asset classes during that time period. Average returns since 1971 for gold have been just over 10%. To put that in some context, average returns for American stocks during the same time period have been only marginally higher at c. 12%. Over a 20-year period, gold has performed better than US equities and was only marginally bettered by emerging market stocks. Over the last 10-years, gold has still managed to achieve average returns of around 5%, despite this current bull run in the equities market.
Reade suggests that physical gold should be a permanent anchor for your portfolio, provided you are a long-term investor. Gold is generally uncorrelated to other asset classes, particularly equities, making it a great diversifier that will work when you really need it to, especially in a crisis, where it has an unrivalled inverse relationship with most other markets.
Gold also has a balanced range of drivers: investment demand, jewellery demand, central bank demand and electronic demand. 7% of gold demand goes into industrial applications. 50% of demand goes into jewellery.
Gold = more returns per unit of volatility. The higher proportion of equities (risk) you have in your portfolio, the higher percentage of gold you should have in your portfolio to offset some of the risk. Investors can buy gold coins, gold bars, and they can invest in physical gold ETFs. Futures provide a more complicated way of accessing the gold market. There a large liquid gold futures markets around the world, but they aren’t for everybody. Reade recommends that investors be extremely careful with who they buy physical gold from, especially new ‘gold notes’ that are laminated gold, and have come into the market. The only way of ensuring gold is legitimate is by buying from a reputable organisation. Don’t get sucked into buying counterfeits for a low price. In addition, investors should consider the premium over the spot price that is being requested by the seller. Gold coins can be purchased at a 6-7% premium.
Gold equities aren’t necessarily dead as EB Tucker suggests, but there are all manner of additional pros and cons that investors need to consider before parting with their hard-earned cash. Investors have leveraged exposure to the gold price, along with access to exploration upside, but they also have to deal with the technical risk, jurisdiction risk, management risk, etc. Gold royalty companies have been great success stories over the last couple of cycles, and there is lots of merit in the diversification they provide.
The World Gold Council used to be remunerated by receiving a percentage of profits from each mined ounce of gold, but times have moved on. Now, the company is no longer wholly dependent on revenue from members. Instead, it receives some revenue from funds. The World Gold Council is an entirely unbiased, objective, fact-based source of information. For example, the Chinese and Indian jewellery economies have been hit extremely hard by COVID-19, and Reade expects a very slow recovery.
Why is gold at over US$1,700/oz today? Reade claims that this is simply the intersection point between supply and demand. This is the going rate today.
What did you make of John Reade and the World Gold Council?
Company Website: https://www.gold.org/
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