Family Offices and HNWs Invest In Gold Again

Family Offices and HNWs Are Investing In Gold Again

– Rising interest by family offices and high-net-worth (HNW) into gold bullion investments
– Gold ETF assets have reached almost $100 billion due to HNWs and pension funds’ increased demand
– Volatility in equities, concerns over trade wars, Trump’s Presidency and other economic worries are spurring demand for gold coins and bars
– Prudent money ‘trickle’ back into gold as investors are reminded of gold’s insurance qualities
– Gold investment ‘indemnifications’? Gold should not be overcomplicated
– Family offices and high net worth (HNWs) should hold gold for wealth preservation and protection during downturns

Editor: Mark O’Byrne

Gold exchange traded funds (ETFs) have seen assets increase to £100 billion as investors, including family offices and high net worth (HNWs) investors look to the precious metal to preserve wealth in the face of volatile markets and heightened economic geopolitical tensions and uncertainty. Family offices and high net worth (HNWs) investors are again looking to protect their wealth by diversifying into gold ETFs and physical gold bullion after many exited the safe haven asset after gold’s unexpectedly poor performance from 2013 to 2015. Gold ETFs famously held about $150 billion in assets in 2012 following the bull market in gold. Since then such investments have fallen out of favour as family offices and HNWs have looked elsewhere for returns. In contrast to the period leading up to 2012, we are not seeing a sudden rush back into gold ETFs, but what can best be described as a slow but steady and rising trickle as asset levels return to around $100 billion. Similarly with gold bullion, leading specialists such as GoldCore who cater to HNW and family offices, are seeing a rising tide of interest from this important niche sector.	Assets in gold-backed, 2005 - 2018 - Click to enlarge
Uncertainty from every angle This steady trickle comes courtesy of multiple geopolitical situations which have caused a significant amount of uncertainty and volatility in financial markets. This uncertainty is likely to continue as there are uncertainties on both the long and short-term horizon which will continue to make investors, retail and HNW, nervous. Since the start of the year each of the major regions have seen an increase in gold ETF holdings. This is because of gold’s recent strong price performance and courtesy of Trump, Brexit and heightened geo-political risk which will affect UK, U.S. and investors internationally. Short-term issues such as Trump’s trade announcements, Brexit updates and the global reaction to events in Syria and the Middle East are leading more risk investors to seek out safe-havens. Longer-term concerns over global inflation, interest rates, pension deficits and the ‘next’ subprime crisis or wider debt crisis will be playing on the back of some investors’ mind, uncertain how such events will unfold and their likely impact on risk assets – stocks and bonds.	Assets Under Management, 2004 - 2018 - Click to enlarge
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Europe and North America are seeing strong demand and hold similar levels of gold holdings – 90% of the total gold ETFs. Such gold products have not proven to be as successful in the likes of Middle Eastern and Asian countries where holding gold is seen as something which must be done directly and without counter party risk. This  makes physical gold coins and bars much more popular in the majority of the world – especially China and India.

Given gold’s role as a wealth preserver for the last 2,000 years or more it is obvious why those looking to protect their wealth would return to this traditional asset class. What is perhaps less clear is why many western investors would choose to invest in what is really a very simple asset via a complicated investment product structure, such as an exchange traded fund (ETF).

Gold investment indemnifications? Gold should not be overcomplicated

There are a number of different options when it comes to gold investment. When looking at how to invest in gold one needs to consider the safe haven asset’s security and liquidity.

As we explain in our Essential Family Office Guide to Investing in Gold, exchange traded funds may or may not be backed by physical gold holdings and some of those that do hold gold contain complex stipulations on convertibility of ETF shares into bullion and very high levels of indemnification. This includes indemnification from many of the key risks that many gold investors own gold in order to hedge against – such as theft, custodian risk, bank risk and systemic risk.

Investors looking for wealth protection will be better served, if they invest in gold with an independent gold provider that enables them to store and access their gold directly through specialist third party storage providers. Gold storage should be in a non bank facility, with insurance and in the stablest and safest jurisdictions.

By managing their gold investment this way investors are ensuring that they have full title to their gold bars, which can be sold at any time and to any gold broker internationally. This ensures liquidity and competive pricing and removes dependence one single gold broker and their staff, IT, servers, website platforms etc.

The decision to invest in gold is one that is based on the investor looking to benefit from the qualities offered by tangible physical gold, as well as performance and returns. Given that owning physical bullion and opting for allocated and segregated storage is only marginally more expensive than getting exposure in the ETF, it behooves all family offices and HNWs to consider ownership of physical gold rather than ETFs. Indeed, financial and pension advisers and brokers who believe in a fiduciary duty should give serious consideration to the benefits of outright ownership of gold bars.

With an ETF, one gets exposure to the gold price, with gold bars in allocated and segregated storage you are guaranteed (even in worst case scenarios) that, but more importantly you also have actual financial insurance, a valuable hedge and an essential wealth preservation asset that will protect and grow wealth in the coming years.