Rally in gold revives debate over spending on the precious metal

With uncertainty clouding the economy and financial markets, the debate is once again over whether gold is an effective hedge.

The price of the precious metal, tracked by the $57 billion SPDR Gold Shares (GLD) ETF, is up 5.7% year-to-date, nearly matching the S&P 500’s 6% gain.

But true believers and converts are likely looking back about a month to gold’s less correlated 0.77% drop in 2022, compared to the S&P 500’s 18.2% drop.

“Gold has a correlation of 0.1 to U.S. large stocks, which is actually less than bonds and most other asset classes, so it could be a smart hedge,” said Kyle Simmons, lead financial planner at Simmons Investment Management. .

“Some people overvalue gold as an investment, so I’m very careful when talking to clients to make sure it doesn’t represent too much of their overall wealth,” Simmons added.

Opponents of gold, who tend to describe it in terms like a non-dividend stone that sometimes rises and sometimes falls, are generally against placing gold as a long-term portfolio hedge.

The price of gold is currently around $1,932 an ounce. Gold is hovering near its recent highs of $1951 in March 2022 and $1923 in September 2020. But between those peaks, the price dropped 14.6% to $1666 in October 2022 and 10.5% to $1721 in March 2021.

This is a pricing pattern where some consultants only justify short-term allocations.

“Gold rose in 2022 before dropping to a 2022 low and then rising for the rest of the year; it’s not a hedge,” said Paul Schatz, president of Heritage Capital.

However, he said: “I do think gold launched a new bull market in the fourth quarter of 2022 and will see at least $2,000 this year with a chance of making new highs.”

Schatz believes that the current rise in gold prices is due to the weakening US dollar and expected changes in the monetary policy of the Federal Reserve.

“I would buy gold and silver on any weakness,” he said.

Karen Ogden, partner at Envest Asset Management, doesn’t like to jump in and out of gold and believes that location is more important than distribution.

“I like to keep gold allocated, even though some question its power as an inflation hedge,” Ogden said. “The key thing about gold that many people overlook is that where the investment is stored is just as important as the distribution.

“Many forms of gold suitable for investment are taxed at a rate of 28%,” she said. “Investors who hold it in a taxable account may mistakenly believe that any gains from positions held for more than a year will be taxed as long-term capital gains, but investments in popular ETFs such as IAU and GLD are actually taxed at rate of 28%. index. If you are also taxed on net investment income at 3.8%, your gold income may be taxed at a rate of 31.8%.

Meanwhile, some advisors see gold as the main, all-weather distribution that should not be messed with.

“Both gold and silver should be part of client portfolios in this environment, and I have held both for my clients for the past 12 to 15 months,” said Hans-Christian Winkler, founder of Winkler Wealth.

“I don’t see gold or silver as a hedging tool, but as an important placement in certain market and economic conditions, like right now,” he added. “To take it one step further, I think this environment also ensures that both gold and silver producers are kept in certain client accounts, as there is a large divergence between gold and silver spot prices and where producer shares are trading right now.”

Dennis Nolte, vice president of Seacoast Investment Services, said that gold is the right asset class for today.

“We are allocating gold to our discretionary accounts in anticipation of an economic downturn and recession,” he said. “Gold is not traded as a commodity, but rather as a currency, and tends to do well in an environment of falling interest rates. We see this scenario playing out later this year.”

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