Despite sharp gains, gold continues to play a key role in portfolios, backed by resilient demand, policy uncertainty and limited new supply.
Ian Samson, multi asset portfolio manager at Fidelity International, said:
“Gold is undeniably popular again with investors. It was one of the best performing assets in our portfolios last year, rising 27%, and it’s already up another 28% this year (to 25 August). Despite this, bullish environments for gold can run strongly for many years. Gold continues to provide diversification even when bonds do not, maintains an ultimate ‘safe haven’ status, offers protection against inflation and loose economic policies, and benefits from structural trends.
“With a macro base case of a US slowdown or even stagflationary environment in the coming months, we remain positive on the outlook for gold. The Federal Reserve is set to lower interest rates, despite inflation still around 3%, and with tariffs likely to keep prices elevated. The tariff hit and a slowing labour supply will also lead to a weak growth environment. This mix of falling interest rates, sticky inflation, and subdued growth should all bolster gold. It should lead to a subdued US dollar, which is gold’s main competitor as a safe haven and store of value. We have never seen this scale of uncertainty and change around tariff policy, and the effects are yet to dissipate. Gold’s status as the ultimate ‘safe haven’ leaves it well placed for any further surprises. In addition, the unrelenting size of the US budget deficit raises concerns about monetary debasement, which further boosts the long-term case for gold.
“Meanwhile, the structural story for investing in gold remains strong. Foreign reserve managers are still buying, and global gold ETF holdings continue to increase. Multiple countries, including China, India, and Turkey are structurally increasing their holdings of gold, in a bid to diversify exposure away from the US dollar. Gold has long been a store of value and a diversifier, without the credit risk associated with paper currency reserves.
“More broadly, gold supply is very constrained, meaning even a small increase in portfolio holdings could move the dial. For instance, if foreign investors decide to move some of the 57 trillion US dollars they currently hold in US assets, gold is a likely beneficiary.
“For now we are happy to hold gold in our well diversified multi-asset portfolios. For much of the year this had been through a combination of passive instruments that track the gold price directly, and through a selection of gold miner equities. The latter has outperformed in the last few months and we have taken the opportunity to book some profits, but retain exposure to the gold price.”
