Clients asking more about gold as yellow metal moves higher

Take heed, advisors. The gold bugs are starting to come out.

The yellow metal may have receded slightly since hitting an all-time high last week of $2,195 per ounce. However, even at its current price of $2,167, gold is still up an impressive 5 percent year to date and 12.5 percent over the past 12 months.

While it’s not getting the same attention as bitcoin or NVDA due to their truly historic bull runs, the stealthy advance in gold is starting to attract more attention from clients, a number of advisors say. And some strategists believe this is only beginning.

“I have been getting questions about it lately,” said Eric Amzalag, CEO and founder of Peak Financial Planning. “For the most part, until the recent run-up, clients have actually pushed back at the inclusion of gold in their portfolio, which I have largely agreed with, because gold has underperformed the market and has not provided the hedge we are led to believe it will.”

Amzalag believes gold is being carried along with the overall market enthusiasm and is more of a “speculative” opportunistic asset similar to bitcoin rather than a safe haven uncorrelated to the market. As a result, he's not adding gold to client portfolios.

“The time to do that would have been 9 months ago, and we are instead hedging risk in other ways,” he said.

THE RATE STUFF AND GEOPOLITICS

Don’t give up on the shiny stuff just yet, especially with a series of rate cuts on the way, says George Milling-Stanley, chief gold strategist at State Street Global Advisors. The rate cuts may just not be arriving as fast as some investors expect, which will delay gold's next leg higher a bit.

“The markets were looking for six rate cuts this year, starting this month,” he said. “We've now pushed that out to maybe June and maybe four, and it may well get worse than that. The most recent print on the consumer price index to me suggests that we're not going to see rate cuts in the first half of this year, so maybe in the second half.” 

If a weaker dollar prompted by a rate cut isn't the catalyst that immediately takes gold higher, then Milling-Stanley says geopolitical uncertainty could do the trick – or at least support the market until the rate cuts arrive.

“I think it's definitely part of that background of uncertainty that gold feeds on and that helps the price to go up, no question about it,” he said.

Michael Cuggino, president of Permanent Portfolio Funds, agrees that geopolitical uncertainty could support gold prices while the market waits for rate cuts. He also owns silver and Swiss francs in his highly defensive and diversified Permanent Portfolio mutual fund.

“We do have a couple of hot wars out there right now, plus some other areas in the world that are not doing as well,” Cuggino said. “You think Ukraine, China, Taiwan, the Middle East, the potential disruption of oil flows, an upcoming US election, some uncertainty in other parts of the world. So there's a lot of reasons to hold gold.”

Cuggino adds that central banks have also been big gold buyers lately, and he expects that to continue.

On the other hand, Daniel Lash, certified financial planner at VP Financial Advisors, says he hasn't been overwhelmed with calls from gold enthusiasts during the run-up – at least not yet. And that's fine with him.

“While gold has outperformed the S&P 500 the past 20 years, most of that occurred in the early 2000s, when gold peaked around 2011 and then decreased since then," Lash said. "Only recently have prices come back up to close to the peak in 2011. So the volatility of the asset class is what keeps us from directly investing in it for clients.”