Gold Has Arrived, As An Alternative Investment

That's the message given by James Steel, metals analyst as HBSC. Gone are the days of gold as a pariah, largely because the portfolio-insurance idea has reached a lot of fund managers.

“Gold is the go-to safe haven, whether the crisis is global or local, whether it affects the bond markets or not,” Steel explained. “It carries no credit risk, and is highly liquid. Canadian farmland may carry no credit risk, but in a downturn, it isn’t liquid.”

The aptly named metals analyst (Steel) added that “a number of portfolio managers are now keeping 5% of gold in their portfolios going forward.” He noted that “Much of the gold buying going on recently has been buy-and-hold.

“One pension-fund manager told me, ‘I hope this (gold) is the worst investment I make this year.’”

Steel predicted that more portfolio managers “will be adopting a buy-and-hold strategy toward gold.”

In addition, gold's traditional wealth-holding function in Asian lands is meeting the newfound prosperity of those lands. That confluence has added a lot to demand.

On the supply side, Steel brought up a little-noted fact that adds to the peak gold case: the average age of a mining engineer is now 52. There's little to no new blood entering the field, making for an expertise bottleneck in the industry.


What's reassuring about the popularity of gold as portfolio insurance is that it's not really a source of bullish exuberance. The benefit of portfolio insurance is it saving the rest of the portfolio, so there's a side benefit if its drops due to low-inflation prosperity returning; the rest of the portfolio more than makes up for the loss.

People who hold gold for asset insurance are less likely to unload than people who hold for a straight gain.