Despite a stellar 16% gain in gold prices in 2024, outperforming other commodities and assets, the latest data from Asset Risk Consultants (ARC) reveals that most portfolio managers maintain minimal to no exposure to the precious metal. The ARC’s quarterly Market Sentiment survey shows that 75% of the 83 managers surveyed either hold no gold or allocate less than 2.5% of their portfolios to it. Not a single manager reported gold exposure exceeding 10%.
Graham Harrison, chairman of ARC, noted that the limited gold exposure cannot be attributed to negative forecasts, as sentiment towards gold remains strongly positive at 35%. He pointed out a historical pattern where gold sentiment tends to be positive when gold price momentum is strong, despite past periods of negative sentiment, particularly between 2012 and 2014.
“Gold’s investment fundamentals are perceived as weak from a value investing standpoint,” Harrison said. “While gold has risen 570% since December 2003, equities have returned 610%, and gold has shown greater volatility.” He referred to Benjamin Graham’s adage that, while sentiment may drive short-term performance, long-term asset performance is driven by fundamentals.
AJ Bell Investments Director Ryan Hughes commented that while gold is considered in their long-term strategic asset allocation models, it has not yet been included in their portfolios. “Our long-term projections align gold’s expected return with inflation, which has not justified its inclusion on a long-term basis,” Hughes explained. He noted that recent rallies are driven more by Chinese central bank purchases aimed at reducing dollar exposure rather than by retail demand.
Chris Metcalfe, Chief Investment Officer at Iboss, acknowledged gold’s strong performance over the past three years and its role in providing portfolio diversification. “Gold miners have seen significant gains, contributing to overall portfolio performance,” Metcalfe said. He noted that while gold typically underperforms in high interest rate environments due to its lack of yield, the metal continues to hit record highs, driven by central bank buying and other dynamic factors.
Overall, while gold’s recent performance has been impressive, it remains underrepresented in many investment portfolios, reflecting a cautious approach from managers despite the metal’s current bullish trend.
