If you’re concerned the stock market will continue to struggle as the coronavirus spreads and bonds will continue to yield less than 2% even on the long end, you might want to consider a small allocation to gold in client portfolios.
Gold prices have rallied about 7% year to date — close to three times the gains in the S&P 500 before the selloff on Monday, Feb. 24 — while bond yields are at or near historic lows in the U.S. and in negative territory in many other developed economies. Gold is now trading near $1,670 an ounce, its highest level since early 2013, boosted in part by a flight to safety stemming from the spreading coronavirus.
“Why lock into very low or negative rates when you can have another long-duration asset?” asks John LaForge, head of real asset strategy for the Wells Fargo Investment Institute.
He calls gold the “chameleon of assets, at one moment attached to macroeconomy or the dollar and the next minute attached to something else.”
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What it’s not attached to historically is the stock or bond market. It is uncorrelated to both, says Paul Buongiorno, chief investment strategist at Tiedemann Advisors. Gold is “a great hedge against market shocks and rising inflation” and has performed well during recessions, says Buongiorno, who called gold a “great diversifier” in portfolios.
The yellow metal is a “great asset to add to more conservative portfolios,” says Buongiorno, who recommends taking an equal but small pro-rata share from equity and bond allocations in those portfolios to end up with a 3% to 5% allocation to gold.
“We are in an environment where gold has historically demonstrated a facility to increase in price for a significant number of years,” says George Milling-Stanley, chief gold strategist at State Street Global Advisors, marketing agent for the SPDR Gold Shares ETF (GLD), which invests in physical gold bullion through its underlying trust.