When Gold Regains Its Place as an Asset Class
Gold, coveted for centuries, shows no signs of losing its luster. The recent surge in the price of gold, which has reached historic highs, confirms that the precious metal should be viewed as a true asset class rather than a fleeting opportunity. Here’s a look at why gold is regaining its prestige and how to gain exposure to it.
The price per ounce reached $2,685 in September, a new all-time high. The escalation of the conflict in the Middle East has reinforced gold’s status as a safe-haven asset. Even amid strong equity and bond markets, gold continues to shine. Demand from central banks and limited supply dynamics are supporting a bullish outlook for gold. Central banks—particularly those in countries embroiled in conflict or subject to sanctions—are increasing their gold reserves, thereby bolstering demand.
It is possible to gain exposure to gold through derivatives and shares of mining companies. Robeco Sustainable Multi-Asset Solutions recently increased its exposure to gold by purchasing ETCs (exchange-traded commodities) and strengthening its positions in gold mining companies. In 1992, Robeco published a white paper in which gold was not considered an asset class. However, the return of the specter of inflation and the 28% rise in the price of gold in 2024 marked the “comeback of the gold bulls.” Gold even outperformed stocks, which had posted solid returns.
The structural dynamics of the market make gold more than just a commodity. Supply is limited, with mine output increasing by only 1.3% per year. What sets gold apart from most commodities is that it is eternal. All the gold that has ever been extracted from the Earth’s crust is still present on its surface. This characteristic fundamentally influences supply potential. The outlook for demand will play a decisive role. Global conflicts have bolstered demand for gold. In countries subject to sanctions or capital controls, gold remains an excellent alternative to money in the bank.
The 2008–2009 global financial crisis was the turning point that marked gold’s return to favor among central banks. Russia, in particular, has been a major buyer since sanctions were imposed against it in 2014. A 2024 survey conducted by the Gold Council revealed that 69% of central banks stated that, over the next five years, a larger percentage of their reserves would be held in gold, at the expense of the U.S. dollar.
The emergence of cryptocurrencies, sometimes referred to as “digital gold,” has fueled interest in alternative assets. However, demand for ETFs has begun to rebound over the past two months. As multi-asset investors, Robeco takes a pragmatic view of gold. Since its 1992 white paper, returns have been favorable. Although its volatility is a drawback, gold offers diversification because it is weakly correlated with U.S. Treasury bonds and stocks, and even has a negative correlation with other commodities. Robeco has made a tactical allocation to gold, in addition to its overall allocation to commodities. Demand from central banks, Asia’s growing wealth, and right-wing liberals are the main factors driving their optimism.
Gold is regaining its prestige as an asset class, driven by growing demand from central banks and limited supply. Multi-asset investors recommend a tactical allocation to gold to diversify portfolios and hedge against inflation and economic uncertainty. By incorporating gold into their investment strategy, investors can benefit from its structural advantages and its ability to outperform other asset classes during times of crisis.
(Source: Robeco)
