Will the good times continue for gold? Advisors weigh in on the yellow metal

Large-cap stocks were not the only asset class set free on “Liberation Day.” Gold was also unchained by the President’s tariff actions in early April, and the yellow metal has been flirting with record highs ever since.

Gold has surged almost 30% year-to-date, while the S&P 500 is up about 10%. As a result, many financial advisors are being forced to decide whether to trim their gold positions to get client portfolios back into balance. Or perhaps on the flip side, they can add more to their precious metals positions to potentially add to their gains ahead of widely expected Federal Reserve rate cuts.

Kevin Thompson, founder and CEO of 9i Capital Group, for example, said its likely that gold allocations in client portfolios have become larger than they were intended to be, and rebalancing may be in order. 

“The larger an allocation becomes, the more susceptible you become to downward prices,” Thompson said.

Elsewhere, James Cordier, chief executive officer of Alternative Options, believes the most compelling reason for “holding or folding” gold at this level must be the investor's time horizon.

“An investment in Gold has certainly delivered alpha so trimming an existing position couldn't ever be thought of as a bad idea. However, for those with a strategy that includes the next five years, I'd suggest holding on tight,” Cordier said.

Meanwhile, Jeremy Zuke, financial planner at Abundo Wealth, does not recommend holding gold at all, even after this massive run because it pays no dividend, interest or rent. That said, he does understand that some people prefer to hold some, just in case.

“If you want to own gold, we recommend limiting it to 5% to10% of your portfolio since it is a speculative asset,” Zuke said.

Emphasized Zuke: “Once you've decided on the gold allocation you prefer, you'll want to have a pre-set rebalancing plan that isn't subject to emotional decision making. So if the high price of gold pushed it up above your allocation target, now is a great time to consider a rebalance.”

Will gold continue to shine? 

Over the next six to 12 months, Thompson expects gold prices to remain positive due to the inflationary pressures and the hedge it provides. In his view, the economy and inflation will have the largest impacts on the price of gold moving forward, far more than the growth of supply in the wake of a reported massive find in Uganda a few years ago. 

“If the economy continues to show signs of slowing, commodities such as gold will be used to offset the impact inflationary pressures and economic downturns,” Thompson said.

Cordier is also bullish on gold, saying the current pro-business administration, coupled with a dovish Fed, will cause most investors “to look beyond a slight slowing in the economy and rather look ahead to what could be.”

“This scenario could very well float several boats, not only stocks prices but commodity values as well,” Cordier said.

Gold as inflation fighter 

Zuke reminds clients worried about inflation that gold is not their only choice. They might also be interested in Treasury Inflation Protected Securities (TIPS), which are bonds whose returns are linked directly to inflation. In his view, TIPS provide a much more direct way to protect against inflation than gold, which has historically tracked inflation over very long time periods but has not always been a reliable short-term inflation hedge.

“Over the long-term, we are much bigger fans of owning equities to combat inflation, as equities have historically provided a large excess return above inflation when held for long time horizons,” Zuke said.

Cordier, however, believes the question concerning inflation and the eroding value of the dollar will certainly be front and center for years to come as the US debt meter continues to flash trillions and trillions of new dollars.

“This concern is certainly not overblown. Beef prices, cocoa prices, coffee prices, metal prices are up 100% and 200% over just the last 12 to 24 months. Investing in assets priced in dollars is starting to become the norm. Allocations of 60/30/10 with the 10% being commodities has become the new vehicle in order to achieve this,” Cordier said.