If the holy grail of investing lies in the concept of non-correlated return streams with which to build truly diversified portfolios, insurance-linked securities (ILS) should emerge as one of the options for investors; but they are still not well-understood. That was the message that John Wells, co-founder and chairman of London-based Leadenhall Capital Partners, had for The Inside Network’s recent Alternatives Symposium.
With private credit garnering plenty of media attention lately, it’s important for investors to understand the underlying variations across this asset class. Lauren Ryan from non-bank lender Thinktank discusses some key points about private credit funds and how they work, as well as some key differences between them.
Getting a grip as gold goes ga-ga
Having smashed through the psychological barrier of US$3,000 an ounce last month for the first time in history, the yellow metal is sitting in the middle of a set of macro-economic and geo-political circumstances that are tailor-made for its lustre to shine even brighter.
Central banks are buying record amounts of gold, and investors continue to see it as a hedge against fiat (government-issued) currency inflation and uncertainty. Plus, gold’s traditional role as a safe-haven asset, which holds its value or appreciates in times when political and economic fears cause turmoil in other markets, has come to the fore, especially since the second Donald Trump administration took office in the US.
Like gold’s traditional investor fans, many central banks want an asset that acts as a hedge against both geo-political and economic uncertainty, inflation and soaring US debt, ensuring that their funding reserves maintain their value. Some want to diversify their reserve assets into areas other than the US dollar – gold can be viewed as a currency – because many countries took umbrage at US and other western nations freezing a large proportion of the Bank of Russia’s reserve assets in 2022, as sanction for the invasion of Ukraine. Many non-western countries saw this as unconscionable weaponisation by the USA of the US dollar’s role as a reserve asset.
Since the freezing of assets of the Russian central bank, gold bullion buying by Emerging Markets central banks has increased by about five times, according to Goldman Sachs, with this trend expected to continue over the next three years. Global central banks hold 12.1 per cent of the world’s gold reserves, the highest level since 1990, largely driven by China, India, Türkiye and Poland.
Institutional investors of all kinds, led by hedge funds, are piling-in to ride the momentum.
It is not so much FOMO (Fear of Missing Out) for these investors, it is that, surveying the turbulent markets and economic changes, they think there’s NETGO (Nowhere Else to Go).
Individual investors are getting in on the act, too. While it has always been possible for individual investors to buy, store and hold gold bars and coins as an investment, the advent of exchange-traded products (ETPs) has given investors the simplest exposure possible, in the form of an ASX-listed security. The demand for gold from these ETPs as investors pour funds into them is a big factor in boosting demand for gold, as the ETPs buy it to accommodate the new investment.
This week, gold notches a fresh all-time high, pushing through US$3,059 an ounce. Since the start of 2024, gold has risen by more than two-thirds in price.
For something that does not have a fundamental intrinsic value, does not provide any cash flow or yield (in fact, it costs money to hold it), a right to future earnings or a promise of repayment at a later date, gold is doing a damn good job of looking like a very nice asset to have sitting in a portfolio.
And the big investment banks are scrambling to update their price targets.
Citi and UBS both just lifted their short-term gold price forecasts from US$3,000 an ounce to US$3,200 an ounce. Bank of America sees gold at US$3,500 an ounce: “We believe gold could rally to $3,500/oz if investment demand increases by 10 per cent, so we make this our new price forecast,” says the bank.
And Goldman Sachs makes that look miserly, saying: “We raise our end-2025 forecast to US$3,300 an ounce (versus an earlier forecast of US$3,100) and our forecast range to US$3,250–US3,520 an ounce. In extreme tail scenarios gold could plausibly trade above US$4,200 an ounce by end-2025 and exceed US$4,500 an ounce within the next 12 months.”
It is important to stress that Goldman Sachs is not expecting gold to trade above US$4,500 an ounce within the next 12 months – which would represent a gain of 46.4 per cent from the price at time of writing – because this is the investment bank’s extreme right-tail (that is, upside) price risk. But it is a staggering number to enter the conversation, nonetheless.
It is a febrile environment for gold, and advisers who have always tended to talk it down – or have refrained from having an opinion on the wisdom of its role as a portfolio holding – need a new strategy.
