A strategic appreciation of gold

• Gold has been one of the top-performing assets in 2024, rising by 12% year-to-date and outpacing most major asset classes.
• Almost two-thirds of family offices responding to the survey indicate that they have gold in their portfolios, and within them, about half of them view gold allocation as a long-term or strategic holding.  
• The World Gold Council’s mid-year outlook suggests that gold’s momentum could continue due to factors like falling rates in developed markets and persistent geopolitical tensions.

Gold has been one of the best-performing assets of 2024. It has risen by 12% year-to-date and outpaced most major asset classes, according to the mid-year outlook of the World Gold Council, a membership organisation that champions the role gold plays as a strategic asset. 

“If you look at gold over the long term, it’s grown at around 8% a year in US dollar terms, and if you look over the last 25 years, it has outperformed the MSCI World total return index,” says Louise Street, Senior Markets Analyst at the World Gold Council. 

In the Campden Wealth Family Office Gold survey in partnership with the World Gold Council, given gold’s history of holding its value against fiat currencies, it is perhaps unsurprising that many family offices shared that they currently had gold in their portfolios. Interestingly, more than half of those who had gold in their portfolios regarded their allocation as strategic. 

Oliver Wilhelm, Global Head of Advisory and Individual Solutions at investment specialists in gold, SOLIT in Germany, confirms that this is a core reason why wealthy families invest in gold. 

It is a hedge against inflation as its value tends to increase when the purchasing power of fiat currencies decreases. Some investors, he continues, view gold as “a form of insurance for their investment portfolio” in that it provides protection against unforeseen events that could impact other classes and, perhaps most simply of all, it is a reliable asset for preserving wealth over the long term. Wealthy families may choose to invest in gold as a way to safeguard their assets and pass on wealth. 

“Investing in gold can provide wealthy families with a way to diversify their portfolio, protect their wealth, and potentially generate returns in both stable and uncertain economic environments,” he says. 

Appreciating gold

While many family offices do consider gold in their investments, there are also some who do not like it. In the survey, the most common reason why they do not want the asset class is because gold has no income or cash flow. 

This perception of gold is not totally correct. “This criticism goes back to Warren Buffet who said, gold has no return and therefore no chance of compounding his wealth,” explains SOLIT’s Wilhelm. “Buffet is right in saying that gold has no yield, but he is wrong in concluding that his wealth would not have been appreciated by holding gold,” he says. 

As he points out, the dollar price of a gold ounce has changed – the average value appreciation of gold/US dollar over the past 15 years has been around 9% a year.

Continued support

This carping aside, the outlook for gold remains positive. Recently headlines, like “Asia family offices pile into gold as hedge against market turmoil” at AsianInvestor indicate how much family offices are joining the rush to gold to hedge their portfolios against market uncertainties both at home and abroad.

In the World Gold Council’s June survey of North American asset owners, the top drivers to investing in gold among this audience are gold’s role as a proven diversifier (32%) and changes in US dollar strength (32%). Its diverse demand base, limited production and inflation-hedging characteristics are also positive drivers.

The key question in investors’ minds, the World Gold Council asked in its mid-year outlook at the beginning of July, is whether gold’s momentum can continue or if it is running out of steam. 

“For gold, we believe the catalyst could come from falling rates in developed markets, that attract Western investment flows, as well as continued support from global investors looking to hedge bubbling risks amid a complacent equity market and persistent geopolitical tensions,” it said. 

In short, while absolute allocation may not be large, gold remains a cornerstone piece to many family office portfolios as a diversification and wealth preservation tool, especially in view of the prevailing market conditions and fragmented geopolitical landscape.