Gold keeps glittering. But are financial advisors buying?

Gold keeps glittering. But are financial advisors buying?
Gold continues to flirt with new highs, but not all advisors have been lured in by the shiny metal.
AUG 19, 2024

Jobs remain abundant. Inflation is trending downward. The consumer is still spending. Earnings have been better than expected.

Put it all together and the American economy doesn’t seem half bad. Nope, not bad at all.

Um, so if that’s the case, why are investors piling into a yellow metal that doesn’t pay dividends and can’t be spent at the grocery store? If the economy is indeed headed for a soft landing then why stock up on the hardest of currencies, not to mention the most ancient?

Seriously, does a potential quarter point Fed rate cut in September mean that much to a commodity that even legendary investor Warren Buffett won’t touch?  

(Yeah, you probably figured out by now we’re talking about gold, now trading over $2500 per ounce, up more than 22 percent year-to-date compared to the S&P 500’s still impressive 17 percent return.)

Nick Codola, senior portfolio manager at Brinker Capital Investments, holds some gold in portfolios for clients, generally allocating around 1 to 2 percent to the yellow metal. For most portfolios, he owns it via physical custody ETFs, but for some of his select strategies, he holds it in a combination of physical custody ETFs and gold miners.

In a few income-oriented strategies, he uses covered call gold ETFs which gain their exposure via futures. He also plans to maintain his allocation even as the price of gold keeps hitting new highs.

“Historically, gold and treasury yields have been negatively correlated with each other, gold has had a tremendous run this year. It is a good indication that rate cuts may have been priced into the run-up,” said Codola.

He adds that gold also tends to perform well in more volatile environments, the flash VIX spike earlier this month being a good example.

“During the market sell-off and VIX spike, gold was basically flat from its price at the end of July,” said Codola.

On the flip side, Don Bennyhoff, founder at Bennyhoff & Co, a fractional CIO for RIAs, does not own gold despite its massive run. In fact, he typically tries to dissuade clients from using an allocation to precious metals, including gold.

“We don’t find the commonly cited rationales for holding gold – such as a hedge against inflation – to be compelling to overcome their potential higher taxation as collectibles or commodities,” said Bennyhoff.

Bennyhoff also dismisses the idea of buying gold ahead of potential Fed rate cuts, saying the yellow metal is often viewed as a "calamity diversifier" and “attempting to successfully time these events is as difficult as any other market timing effort.”

Brendan Connaughton, founder & managing partner at Catalyst Private Wealth, also has no direct exposure to gold at the moment and he’s not planning on adding any in the short or intermediate terms.

“Gold is often thought of as the ultimate safe investment. I actually think US Treasuries are better, but I’m an old bond guy,” said Connaughton.

And while Fed Chairman Powell’s upcoming comments at Jackson Hole will be widely watched, Connaughton believes the Fed’s expected rate cuts are pretty well priced into the market.

“Another reason why gold isn’t appealing to us is that it’s up 22 percent year-to-date already,” said Connaughton. “I’m reminded of the Warren Buffet quote ‘to be fearful when others are greedy and to be greedy only when others are fearful.’ And with gold up that much, I’d say there’s some greed out there.”

SSGA strategist breaks down the bull and bear cases for gold

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