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Gold Appeal: Individual Investors a Key Source of Metals Demand

Isaac Nuriani    |
May 17, 2024
  • Precious metals’ price resilience continues to impress.
  • Expert says “all classes of investors” are turning to gold.
  • Data suggests physical gold demand among individual investors has increased significantly.
  • Individual investors have the option to purchase physical precious metals inside an IRA.
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The relentless resilience of precious metals continues. 

We’re now a little more than 2½ months into what can be fairly referred to as a surge by gold and silver. And while there have been a few hiccups along the way up, the bottom line remains that both metals continue to impress with their price durability.[1] 

Since the end of February through this week, gold climbed 18%, to more than $2,400 per ounce.[2] Over the same period, silver increased even more on a percentage basis, jumping 38% to more than $31 per ounce.[3] 

In the opinion of many analysts, one of the more notable features of this demonstrated bullishness is that it’s occurred in the face of an interest rate climate that should be hostile to metals.[4] Precious metals have a historical tendency to wilt in the presence of higher rates. For one thing, higher interest rates raise the opportunity cost of holding precious metals, because interest-bearing “competitor assets” of metals can be seen by some investors as having more to offer in terms of return than gold or silver bullion which pay no interest at all.  

Also, rising rates tend to mean a stronger dollar, and a stronger dollar serves to make metals – which are priced in dollars – more expensive in foreign countries. Enhanced dollar strength also suggests that currency debasement (a popular justification for owning precious metals) is not taking place at the same time. 

But not only have chronically higher rates not deterred precious metals, even recent suggestions by the Federal Reserve that hinted-at rate cuts may not come to fruition haven’t managed to take much wind out of the sails of metals. Although gold did stretch above $2,400 a couple of weeks ago before the news of “higher-for-longer” interest rates began to emerge in earnest, the fact that the yellow metal remains around $2,370 goes a long way to proving just how durable it is right now.[5] 

As for why it’s so durable, analysts say the answer is simple: Gold is in great demand right now, particularly from the world’s central banks. According to the meticulous records compiled by the World Gold Council, central banks have been net buyers of gold for the last 15 years – since the financial crisis, not so surprisingly.[6] 

What’s more, gold demand among central banks has been intensifying in recent years. In 2022, central bank gold demand reached an all-time calendar year high of 1,081 metric tons. And in 2023, central banks fell just shy of matching that demand record, acquiring 1,037 metric tons of the metal.[7] 

And while there remains a long way to go before 2024 draws to a close, the World Gold Council suggests central banks’ vigorous pace of purchases is likely to continue throughout this year, as well. On that note, central bank net gold demand in the first quarter totaled 290 metric tons – the most in any calendar-year Q1 on record.[8] 

It seems professional money managers have been getting in on the gold act, as well. Recent analysis by Citibank found that of the largest professional investors, which are overseeing a total of more than $18 trillion in assets, 83% of them own gold, presently.[9] 

But as it turns out, the current gold “boom” appears to be due to much more than the sharp uptick in demand among institutions. Evidence suggests it’s also being supported by the purchase activity of individual savers and investors. 

A recent article by the Wall Street Journal discussed the appeal of gold for individual investors right now. And what the Journal seems to have discovered is that while central banks, governments and institutional investors may have more “macro” dollars on the line than individual savers and investors, those savers and investors essentially have the same concerns as larger institutions about the stability of their portfolios. 

In other words…in the same way central banks and other institutional investors are turning to gold to hedge and effectively diversify their reserves, individuals are turning to gold for the very same reasons. 

This week, we take a look at interest in gold from the vantage point of the everyman. 

Individual Investor: Owning Gold Allows Me to Take “Family’s Safety into My Own Hands” 

Central banks and sovereign wealth funds effectively represent the financial reserves of the world’s governments. And how they seek to diversify and hedge their all-important reserves is a critical decision. 

We know that one way they go about trying to accomplish that goal is through the acquisition of gold. We know this not merely because they’ve been acquiring a lot of it over the last 15 years. We know it because of the reasons they give for the high volume of purchases. 

Among their responses to the World Gold Council’s 2023 Central Bank Gold Reserves Survey, central banks listed the following as among the “most relevant factors” in deciding to own gold: 

  • Performance during times of crisis. 
  • Long-term store of value/inflation hedge. 
  • Effective portfolio diversifier. 
  • No default risk. 
  • Serves as a geopolitical diversifier. 
  • Concerns about systemic financial risks.[10]  

Does anything jump out at you about this list of reasons why central banks own gold? Perhaps that it speaks to the same fundamental concerns harbored by individual investors. 

In a recent piece on gold ownership at the “front lines,” the Wall Street Journal made clear that the significant uptick of interest in precious metals we’re seeing is attributable to not just institutions…but to “regular people,” as well. 

Among those “regular people” highlighted in the article is Eric Vazquez, a power company lineman in Florida who, the Journal notes, owns “a lot more gold than most financial advisers would recommend.” Vazquez’s particular concerns include fiscal irresponsibility on the part of the government and the vulnerability of financial markets he suggests has been exacerbated in an age of hyper-information.[11] 

Notably, the Journal points out that Vazquez insists on owning his gold in physical form, which he says gives him the greatest peace of mind. 

“At least in my adult life, nothing’s gotten better,” Vazquez, 33, told the Journal. “And I just feel like I want to take as much of my own livelihood, my own safety, my own family’s safety, into my own hands.”[12] 

Another subject profiled by the Journal article is Barry Kitt, a 69-year-old former hedge fund manager who, despite his long-standing professional relationship with more mainstream financial assets and instruments, also prefers owning his gold in physical form. 

“You don’t own gold, you own a piece of paper,” Kitt told the Journal about securitized forms of gold. “I want to own it. I want to know it’s mine.”[13] 

There’s evidence that accumulation of gold by individuals has been trending upward for some time. The Journal piece points out that global demand for gold bars and coins – “typically bought by individuals rather than institutions,” the paper notes – swelled by 36% from 2019 through 2023.[14] 

In some ways, the recent article by the Journal is a kind of sequel to a similar article the paper wrote last year on the subject of individual investors’ growing affinity for gold in the midst of an increasingly uncertain economic environment. 

Writing in 2023 that “inflation, interest-rate increases, bank failures and market craziness have lured many other individual investors to precious metals such as gold and silver,” the Journal profiled 44-year-old engineer Joe Susanno, who told the paper, “Precious metals are kind of what just makes it so I can sleep at night, where I hold it and nobody can hurt me.”[15] 

Renowned Gold Analyst: “All Classes of Investors” Now Turning to Gold 

Mr. Susanno’s expressed confidence in precious metals notwithstanding, it is useful to remember that gold and silver are susceptible to the potentially significant price fluctuations characteristic of so many assets and instruments. 

That said, central bankers – arguably the most informed financial professionals in the world – seem to have concluded that when the chips are down in terms of the economic and geopolitical landscape, owning gold is one way they try to ensure that uncertainty in the context of their reserves portfolios doesn’t get too far out of hand. Institutional money managers appear to have concluded the same thing. And so, it seems, have individual investors.  

“There has definitely been a gradual accumulation by just about all classes of investors—institutional and individual investors themselves,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors.[16]  

And for the same fundamental reason, when it comes down to it: uncertainty. Because whether you’re overseeing the reserves portfolio of a central bank or the portfolio of a personal retirement account, there is, effectively, no difference in the core nature of the risks to financial stability. Which means if there’s no real difference in those risks, there likely is little to no difference in the opinion of how they should be addressed. 

To be sure, investors such as Eric Vazquez and Barry Kitt don’t have access to the exact same resources as central banks and governments in acquiring physical gold. However, individual investors do have all they need at the retail level to put gold and silver to work on behalf of their personal portfolios, if they decide it’s in their best interests to do so. 

For example, investors can purchase their precious metals on a straight cash basis, which affords them maximum flexibility in deciding how and where their assets will be stored. Alternatively, they can buy their metals through a gold IRA, which offers the same potential tax-advantaged benefits as other IRAs (consult with your tax advisor for more on the tax implications of IRAs). 

That said, the larger point is this: Precious metals have demonstrated significant resilience recently, through conditions that many expected would be a problem for metals prices. And while analysts agree that investors at the largest, most institutional levels deserve much of the credit, observers also recognize the important role played by mom-and-pop investors in supporting prices…raising the possibility that a broad-based, global shift to the structural embrace of gold may be underway.    

 

 

[1] Fawad Razaqzada, FOREX.com, “Gold and silver analysis: XAG/USD nears major support” (May 2, 2024, accessed 5/16/24). 
[2] CNBC.com, “Gold COMEX (Jun′24)” (accessed 5/16/24). 
[3] CNBC.com, “Silver COMEX (Jul′24)” (accessed 5/16/24).  
[4] Frank Holmes, U.S. Global Investors, “Gold And Real Interest Rates Are No Longer Correlated, BMO Says. What Now?” (January 26, 2024, accessed 5/16/24). 
[5] CNBC.com, “Gold COMEX (Jun′24).” 
[6] World Gold Council, “Gold Demand Trends Full Year 2023” (January 31, 2024, accessed 5/16/24). 
[7] Ibid. 
[8] World Gold Council, “Gold Demand Trends Q1 2024” (April 30, 2024, accessed 5/16/24). 
[9] Yun Li, CNBC.com, “The biggest money managers are flocking to gold as inflation fears intensify” (April 18, 2024, accessed 5/16/24). 
[10] World Gold Council, “2023 Central Bank Gold Reserves Survey” (May 30, 2023, accessed 5/16/24). 
[11] Bob Henderson, Wall Street Journal, “Inside the 21st Century Gold Rush” (May 11, 2024, accessed 5/16/24). 
[12] Ibid. 
[13] Ibid. 
[14] Ibid. 
[15] Hardika Singh, Wall Street Journal, “When Markets Get Scary, Mom and Pop Buy Gold” (August 7, 2023, accessed 5/16/24).  
[16] Ibid. 

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