Is gold still the best hedge?


Speakers for the event were Anthony Bamber, Head of Business Development at The Royal Mint, Jason Griffin, Director of Capital Markets and Business Development at HANetf and Eric Strand, CEO of AuAg Funds.

The return of gold amid Russia’s war in Ukraine and monetary policy uncertainty, the role of exchange-traded commodity (ETC) gold in a multi-asset portfolio, and the combination precious metals with ESG were the topics discussed at ETF feeds recent webinar in partnership with HANetf.

The webinar, titled Inflation protection: is gold still the best hedge?began by looking at ETCs’ dramatic return to gold after a mild recovery from COVID-19 in 2021.

Anthony Bamber, Business Development Manager at The Royal Mintwho co-founded the Royal Mint Physical Gold Securities ETC (RMAU), said: “Towards the end of February we saw gold jump around 6%, which was the biggest monthly gain since May 2021.

“While everything in Russia and Ukraine started to escalate in March, it hit its all time highs again. It is these escalations and other underlying issues such as inflation and the energy crisis that are driving the cause.

“We’ve seen it pull back a bit since then, but there’s so much going on in the markets and a lot of unknowns – and that’s where gold comes into its own as a risk asset.”

An advantage of gold ETCs is that they are easy to access and trade with the same liquidity as their underlying, whether in physical or futures format.

Jason Griffin, Director of Capital Markets and Business Development at HANetfwhich distributes a gold ETC and a gold miner ETF, said banks can access gold spot and futures markets and easily deliver gold to ETCs.

Offering a case study, Griffin pointed to a day in March when $150 million flowed into a gold ETC co-launched by HANetf in a single day that was executed at a cost of one basis point.

Gold against inflation

The Royal Mint’s Bamber highlighted the age-old comparison of gold and inflation and told participants that a study by the World Gold Council had found that in years when inflation exceeded 3%, gold had yielded approximately 14%.

Eric Strand, CEO of AuAg Fundswho launched the AuAg ESG Gold Mining UCITS ETF (ESGO), then addressed some misconceptions about how gold behaves during times of rising inflation.

“What’s interesting is that people think high rates aren’t good for gold because gold doesn’t have a dividend,” Strand said. “But actually, if you look at the last two cycles, gold has had very good returns, both when interest rates started to rise and later when they had to lower rates – that’s really is a perfect storm for gold.”

Source: AuAg

Strand added the challenge for gold comes with the discussion around rate hikes, rather than the rate hikes themselves. Emphasizing this, he illustrated the vast outperformance of gold against currencies such as the euro and highlighted its price performance in euros against the currency itself.

Source: AuAg

What a gold allocation might look like

Strand went on to say that one of gold’s main strengths is its low correlation to other assets. Although more correlated, ESGO captures the actions of gold miners rather than the gold itself. This normally results in outperformance during gold bull markets and vice versa during periods of underperformance.

“If you’re playing precious metals for your safety, gold 1:1 is the place to be. If you’re playing the precious metals market for returns, then mining stocks have some things that gold didn’t,” Strand said.

“They pay dividends, for some money managers it’s easier to allocate equities rather than a commodity, they’re more volatile so could also take up a smaller place in a portfolio.”

HANetf’s Griffin added, “We’re seeing some investors holding gold as a commodity and as an equity at a ratio of 70:30 or maybe even 30:70. These allocations depend on investors’ view of where the price of gold might be. If they are more optimistic, they can increase their allocation to miners.

Squaring the circle on ESG and gold

The webinar then looked at ways to reconcile the precious metals mining process with ESG characteristics.

One way is to choose issuers that apply best practices in ESG measurement – ​​such as ESGO which captures the most ESG-compliant gold miners.

Griffin also suggested that gold miners could purchase voluntary carbon offsets or carbon credits – such as EUAs – to bolster their emissions reduction credentials, alongside existing net zero efforts.

Offering a unique approach, Bamber said the Royal Mint has partnered with a Canadian company to recycle precious metal “e-waste”, removing gold from electronic devices to create new gold products.

Bamber also noted the LBMA’s recent decision to remove new gold bullion from Russia from its good delivery list. While old Russian bullion is still as-delivered, the Royal Mint has already traded existing Russian gold from RMAU.

To watch the full webinar, Click here.

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