The Perth Mint makes case for gold investment

Dec 20th, 2018 | By | Category: Commodities

By Jerry Hicks, Sales & Business Development Manager at The Perth Mint.

The Perth Mint, Australia’s largest precious metals refining, minting, and depository enterprise, introduced the Perth Mint Physical Gold ETF (AAAU US) in August 2018.

Jerry Hicks, Sales & Business Development Manager at The Perth Mint

Jerry Hicks, Sales & Business Development Manager at The Perth Mint.

For centuries gold has been viewed as a safe haven investment in times of uncertainty. In the past two years, a strong US dollar and prolonged market gains have prompted fluctuations and increased pressure on the price of gold. But now gold analysts are calling for a refreshed look at the precious metal, as the US economy shows signs of a cycle peak next year, geopolitical tensions rise, and a growing middle class of gold consumers in China and India emerges.

Gold as a portfolio diversifier

Investors have long looked to gold for mitigating financial risk and adding diversification to portfolios. Most analysts agree that the precious metal’s continued low correlation to other asset classes, such as equities and the US dollar, strengthen the case for gold as a diversifier.

Citing uncertainty over US domestic policy settings, as well as tensions in the Middle East and Brexit negotiations, the GFMS Thomson Reuters Gold Survey 2018 noted that the current climate would support gold as a risk hedge late into the year. Meanwhile, CNBC commentator Jim Cramer has long been a proponent of investors holding gold within their portfolios.

Central banks to increase gold reserves

Central banks share analysts’ view. Official gold reserves are estimated to increase by 450 metric tons in 2018, up from a gain of 375 tons in 2017, according to research from precious metals consultants Metals Focus. This is the first year-on-year increase since 2013 when banks boosted their holdings by 646 metric tons.

Asian middle class expected to boost gold demand

September 2018 marked a ‘global tipping point’ when, for the first time in history, slightly over 50% of the world’s population was considered ‘middle class’. This emerging middle class is booming in Asian countries, with Brookings Institution researcher Homi Kharas and Kristofer Hamel of the World Data Lab forecasting that almost 90% of the next billion middle-class consumers will be spread across China, India, and other South and Southeast Asian nations. Their findings were outlined in the Brookings Institution research paper A global tipping point: Half the world is now middle class or wealthier.

These nations consume a significant amount of gold, with China producing 426 tons of gold in 2017 and importing an additional 1,091 tons annually, as determined by GFMS Thomson Reuters. Indian gold production is negligible but demand is high, at more than 723 tons in 2017. Together China and India accounted for more than half annual gold fabrication demand in 2017.

Given the cultural affinity for gold jewelry and investment products in key Asian countries, it is expected that the growth of the middle class in the region may further boost demand for the precious metal as burgeoning numbers of people have more discretionary income to spend on luxuries.

Capitalizing on gold’s upside potential through ETFs

While the case for gold continues to be strong, some investors are hesitant to hold and store physical precious metals. ETFs offer investors a contemporary and cost-effective strategy to gain access to the price of gold and the potential benefits of investing in the metal without having to store physical bars.

The convenience of ETFs has been a significant factor in gold demand during recent years. Thomson Reuters figures show that total holdings in gold ETFs were up 8% at the end of 2017, while North American gold ETFs had combined total assets under management (AUM) of approximately $45 billion at the end of August 2018

A pure play on gold

There are several gold ETFs on the market, and it can be difficult to clearly determine their differences when performing due diligence.

The Perth Mint Physical Gold ETF (AAAU US), listed on NYSE Arca, stands out in the marketplace by offering investors direct access to a pure play on gold with a competitive management fee of 0.18% per year.

Significantly, the shares are backed by allocated gold secured within The Perth Mint’s network of central bank grade vaults in Western Australia, one of the world’s safest geopolitical regions. The Government of Western Australia fully owns The Perth Mint and guarantees the underlying gold assets held on behalf of investors in the fund, with the guarantee enshrined in legislation.

Additionally, AAAU allows investors to easily exchange their shares into bullion by selecting gold bars or coins from The Perth Mint’s suite of products for delivery to an approved location of their choice. Counterparty risk is also minimized because The Perth Mint, Australia’s largest precious metals enterprise, refines and vaults the gold itself.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

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