60 seconds on the case for gold exposure
Gold is under-owned but some exposure may be needed as inflation is building alongside other risks.
2 November 2017
A minimum amount of gold exposure - whether it is physical gold or gold equities - is warranted given the external risks that are building.
The first risk is negative real rates. Inflation is definitely picking up globally, but at the same time governments have very little room to effectively increase interest rates.
The second risk is equity market valuations and complacency. The market is extremely complacent at this point in time. You can see that in the VIX index – which is a measure of implied volatility – being at a 27-year low. At the same time S&P valuations are extremely stretched, in our opinion. Not everyone thinks that, hence why the VIX is so low.
Thirdly, gold is relatively under-owned. It is only 2% of all global ETFs at this moment in time, whereas it was as high as 10% only five years ago. Global gold equities are also extremely under-owned – they’re only 0.6% of the S&P 500 and the TSX combined. So hardly anyone owns gold and hardly anyone owns gold equities.
This is with a backdrop of increasing political risk. All the signs from government policies and individual politicians suggest that political risk may build over the next few months.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.