Gold Helps Investors Diversify
With gold prices soaring above record highs of $1,700 an ounce this past Monday, buyside managers were hungry to get the traditional marker of “safety” into their portfolios.
“The biggest lesson of the financial crisis of 2008 is that traditional buyside portfolios were not diversified,” said William Rhind, manager director of ETF Securities, a provider of exchange traded products with 4.2 billion of assets under management. ETF Securities offers metal ETFs, including physically backed platinum and palladium, and offers an equally weighted basket ETFs of gold, silver, platinum and palladium.
“(In 2008), most investors didn’t have exposure to gold, and if they did, it was very minimal. In severe times of market dislocation, gold is one of the assets that had held value. Buyside clients are looking to get gold exposure,” Rhind said, commenting on gold’s “low correlation to the bond and equity markets.”
And the gold rally is about to get louder.
“We’ve seen a big selloff in the equities market and as a reaction to that, gold prices are all time high. In an environment where we could be going into a double dip, people want to increase their allocation to gold,” Rhind noted.
Rhind told Markets Media that a pending equity market sell-off is difficult to discern from gold prices, but trends in trading volume speak loudly.
“Our gold ETFs have been trading over the past few days, well above their three month averages,” he said. “There are strong inflows into gold. If you could draw any conclusion, I would say that from a sentiment point of view that gold flows are higher than normal, so that means people are buying the asset—not selling.”
Hard assets such as gold and other precious metals traditionally have had an inverse relationship to equities.
“If you don’t want to buy a particular metal, but you want to get exposure to them, you can try our ETF basket GLTR,” Rhind said. GLTR is the ticker for the firm’s equally weighted basket ETFs of gold, silver, palladium and platinum. The last metal is particularly favorable, according to Rhind.
“The gold and platinum ratio has reached parity again for the first time in two years,” Rhind said.