Investors can rely on gold to continue providing solid returns despite sluggish economic growth, according to an investment fund manager.
Datt Capital managing director Emanuel Datt pointed out gold had risen from US$1400 to over US$2075 in the past 12 months despite recent market volatility and would continue to perform well in an economic environment shaped by low interest rates and geopolitical uncertainty.
“The recent rise in demand has been driven by a confluence of environmental factors, namely: uncertain geopolitical and social environment, record low interest rates, negative real rates in major fixed income markets and accommodative monetary policy,” Datt said.
Low interest rates in particular were key to gold becoming a more attractive option for investors during this time of “sluggish” economic growth, he noted.
“When interest rates are higher, for example, at 5 per cent, there is a real and tangible opportunity cost involved in holding non-yielding assets such as gold. Whereas the effect is diluted significantly in an environment where real rates of return are negative or zero,” he said.
He highlighted the demand for gold exchange-traded funds among retail and professional investors as another factor contributing to solid returns.
“More [professional investors are] looking beyond investing in conventional money market instruments to allocate capital towards gold in a hunt for diversification,” he added.
“We believe that the gold price in the short term will remain firm. This bodes well for Australian production assets, especially in a world where we expect the US dollar to remain relatively strong.”
In June, digital investment platform provider SendGold made its gold trading service available to SMSFs after receiving multiple requests from the sector to do so.
In December, the Perth Mint said SMSF investors locked out of alternative investments accessible only to institutional investors could invest in gold, which offers similar returns in low interest rate environments.