Gold is back on investors’ minds after a sustained period of geopolitical and economic uncertainty, says World Gold Council head of Asia-Pacific, Shaokai Fan.

Gold, he says, has a different profile to other asset classes as, in addition to its price being supported by scarcity, when times are good, people purchase gold in the form of jewellery or electronics, but when times are bad, gold is purchased as a defensive asset. “It makes the correlation between gold and many other asset classes really, really low,” says Fan.

But he says Australians have been slower to move on gold due to this country’s relatively good economic performance and distance from geopolitical meltdowns.

In the first half of 2023, the price of gold increased 5.4 per cent in US dollar terms, to $US1912.25, according to the World Gold Council. In May, the precious metal nearly breached its record of $US2075, set in August 2020. “The last few years have been strong for gold retail demand,” says Fan.

 

It came off the back of more than three years defined by COVID-19, Russia’s invasion of Ukraine and, in the last year, central banks embarking on a global rate rising campaign while also participating in a record-breaking gold-buying streak.

“The reason that gold has been doing so well over the last year or so is because central banks have got back in the game again,” says David Tuckwell, investment strategist at ETF provider Global X.

“There’s this myth in the market that gold became an irrelevant asset once the gold standard ended in the 1970s – and that central banks and governments are no longer interested in and no longer use gold. That’s not true at all.”

He notes that in the first quarter of 2023, central bank demand for gold hit 228 tonnes, up 34 per cent on the previous first quarter record, last set in 2013. And it followed record annual demand of 1078 tonnes over 2022. “That’s been the big story in the gold market over the last 12 months,” adds Tuckwell.

In addition to the European conflict prompting European investors to stock up, the World Gold Council also observed a spike in buying in Turkey ahead of the presidential election, and US buying following the string of banking failures in the US.

The World Gold Council anticipates gold will remain supported, largely in line with its long-run return into the second half of 2023, although a severe economic downturn could push it beyond the 2020 record.

According to ABC Bullion general manager Jordan Eliseo, it’s not just that Australians haven’t felt the need to protect themselves against geopolitical or economic fallout, they also believe gold investment is the province of the wealthy.

“There’s this perception out there that you need megabucks to invest in gold, but that couldn’t be further from the truth,” Eliseo says.

ABC Bullion recently opened its flagship store in Sydney’s Martin Place in a bid to position gold as a more accessible investment asset.

Eliseo says sales through its store, or showroom, channel have increased 35 per cent in the second quarter of 2023, compared to the same period in 2022. The company previously had a showroom within its office on Sydney’s Pitt Street. ABC Bullion has also seen a 10 per cent increase in overall gold sales over the same period.

And in the first week after the store opened, a customer walked in off the street and bought about $2000 worth of gold.

“A fortnight later, they had opened a family trust account with us and invested more than $3 million,” says Eliseo.

It’s the sort of story that he believes highlights the importance of having a prominent storefront in the heart of the Sydney central business district, although he notes that most investors won’t be plugging millions into the asset class. The company is also promoting its ABC Bullion gold saver product, which allows investors to “save” in gold from $50 a month.

But it also highlights how, in Australia, gold investment remains dominated by older and wealthier investors, a trend ETF providers and advisers also observe.

Data from exchange-traded fund (ETF) provider BetaShares shared with the Australian Financial Review shows self-managed super fund (SMSF) investors are twice as likely to invest in its gold bullion ETF, while fellow ETF provider Global X estimates the average holder of its gold ETF is a Baby Boomer.

However, financial adviser Liam Shorte has observed an increase in younger SMSFs seeking exposure as part of a broader tilt towards alternatives.

Around 20 per cent of his clients at Sonas Wealth have some exposure to gold. Some are investors interested in owning and holding gold bullion due to a belief they need to be prepared for “anything the world throws at us”, and others are interested in gold for its diversification properties and are more likely to invest in gold ETFs. Shorte says the latter include younger SMSF investors.

“They’re interested in all the trends, whether it’s ESG investments or crypto or alternatives like bullion or precious metals,” he says.

While the first group will often have around 20 per cent of their SMSF in gold bullion, the younger, more ETF-focused cohort tends to have a 4-15 per cent exposure, usually through an ETF.

He says ETFs have made it easier and cheaper for investors to gain exposure, as they don’t need to consider storage considerations.

“It used to be something that only very rich people considered, or if they had it in their portfolio it was jewellery,” he says.

“But now, more and more people are opting for small nuggets from companies like ABC Bullion who will organise the storage and the end-of-year tax return statement and independent audit report.

“It’s just a lot more accessible to a lot more people, and we are in times of uncertainty, so people look for something that’s going to store well.”