Asia-Pacific goldbugs fly as political, economic uncertainties swirl

Investors across the Asia-Pacific (APAC) region are turning to gold, lured by its diversification and haven benefits at a time of uncertain economic growth and rising geopolitical risks.

Asia-Pacific demand has ensured gold prices continue to hover around the record levels struck last month as investors lose faith in other underperforming asset classes like equities and property.

"The investment appetite for gold has grown structurally as prices are supported by consumption demand and as a shelter from geopolitical risks," said Gary Ng, a senior economist at French investment bank Natixis. "As gold is now perceived as an integral part of a portfolio to diversify risks, the interest from APAC asset managers is likely to sustain and even grow further."

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Echoing these views, Min Lan Tan, head of the APAC chief investment office at UBS Global Wealth Management, said the big unknown for Asia was the upcoming US election and the potential of a tariff shock should Donald Trump be elected.

"If we get a Trump victory, then the level of uncertainty is going to rise much more," she said, adding that to hedge a potential tariff shock UBS is taking long positions in gold, among other assets.

Meanwhile, a survey conducted jointly by State Street Global Advisors and the World Gold Council and published on Wednesday showed that over the next 12 to 18 months, 27 per cent of APAC asset owners plan to increase their gold investments. That compares with their North American counterparts, where only 21 per cent expect to do the same.

The survey, which interviewed 850 consultants, financial advisers and institutions globally, including 63 asset owners based in APAC, also found that 76 per cent of the asset owners in the region already have exposure to gold, which is on par with their peers in North America.

"An increasing number of asset owners in [APAC] are using gold as a core asset for long-term investment horizons, which is where it shines in the context of a well-balanced, diversified portfolio," said Robin Tsui, APAC gold strategist at State Street Global Advisors.

Among APAC's asset owners who were interested in gold, 59 per cent said this was because gold is a "proven diversifier," especially at times of financial turmoil and uncertainty. 37 per cent said gold increases risk-adjusted return over time, while another 37 per cent said the precious metal is a useful hedge against a weakening US dollar.

The US presidential election takes place November 5.

"Typically, the market sells off in the month or two before elections, and then once there's certainty on the election, it goes back up again," said Mark Haefele, chief investment officer, UBS Global Wealth Management adding that certain assets are favoured in the current environment, including gold. "We think by next year, gold could move to US$2,700 an ounce," he said.

However, investing in gold comes with its own set of limitations. In the State Street Global Advisors - World Gold Council survey, 59 per cent of the respondents identified the lack of coupons or dividends as a major barrier. Thirty-eight per cent noted that gold's intrinsic value is difficult to calculate due to the absence of an established model, and 25 per cent mentioned that a volatile US dollar made gold a less appealing investment.

"Last year, overall demand for gold hit a record high as prices rose by 13 per cent amid economic and geopolitical uncertainties," said John Reade, chief market strategist for Europe and Asia at the World Gold Council.

With expectations that the US Federal Reserve will ease policy at some point in 2024, and a contested presidential election looming in the US, there is a strong case for increased demand in the coming year, Reade added.

"Part of the demand may still weaken if inflation falls in the future, especially as gold does not generate cash flows and prices can be volatile from time to time," said Natixis' Ng. "It is really more for hedging risks in the long run than short term gain."

Meanwhile, demand from countries planning to reduce their reliance on the US dollar could extend the rally, analysts said. The World Gold Council said that central banks accounted for almost a quarter of annual gold demand in 2022 and 2023.

"China's move to diversify its reserves away from the US dollar, along with similar strategies by other BRICS nations, is fuelling a potent new wave of demand for gold," said Andy Mok, senior research fellow at the Center for China and Globalization.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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