When nearly everything's a winner, gold investors get antsy

By Stan Choe
AP Business Writer

NEW YORK (AP) — In a world where nearly every investment is rising, so is gold. But a big part of why many investors are buying gold is that they’re worried those other investments, such as stocks and bonds, are due for a drop.

Will Rhind is a former executive at the largest exchange-traded fund backed by gold bars, SPDR Gold Shares. He recently started a rival ETF, GraniteShares Gold Trust, and talked about what’s been behind this year’s 13 percent rise for gold. If that performance holds, it will be the best year for gold since 2010. Answers have been edited for clarity and length.

Q: Is it odd or disconcerting that gold and stocks are rising at the same time? Isn’t gold at its best when everything is falling apart?

A: Definitely not odd, but you have to understand why it is doing what it is doing. The main reason has been the decline of the U.S. dollar since the beginning of the year. Historically, gold has had an inverse relationship with the dollar because the lens that a lot of people view gold through is as a currency and not as a commodity.
What’s also been helping gold prices is geopolitical tensions, such as the North Korean situation. Gold is one of those safe-haven assets that people have historically gone to in times of stress.

Q: But the Federal Reserve is raising rates and inflation is low. Haven’t each of those historically dulled the appeal of gold as an investment?

A: Although interest rates are rising, they’re not rising in a large way. We’re talking about very nominal rises, and interest rates today are still at historical lows versus where they were 10 years ago. From that perspective, that’s not really going to impact gold much at all. And that’s shown in the price.
On inflation, this is not the consensus, but you’ve got some people starting to question the last 40 years of a disinflationary environment and wondering if this is a turning point and are we now moving into an inflationary phase.

Q: Gold is still down about 30 percent from its peak six years ago. Have investors reframed what they expect from an investment in gold?

A: Gold hasn’t escaped the bear market in commodities generally, against the bull market of the dollar. When people look at asset classes that are trading at or near all-time highs, gold and commodities are very much not among those asset classes.

As to whether you can expect good performance from gold going forward, it is impossible to tell, but we’re at a level that looks to be reasonable given where we’ve come from.

I think what’s happening is there is a movement of capital out of some of these more traditional asset classes (like stocks and bonds) and into gold. As bond prices have increased, and equities have increased, people might be looking to rebalance that. You’ve got people really nervous about the level of the stock market and the bond market, and they are looking to insulate their portfolios to the extent that they can if there’s a correction or worse in the market. People are looking for ways to diversify their investments, and gold is probably the largest, most liquid asset class in the world that is not correlated to stocks.

You’ve started to see smarter money moving into gold, famous hedge fund managers talking about that the last few weeks. (Ray Dalio, founder of Bridgewater, the world’s largest hedge fund, suggested in a recent blog post on LinkedIn that investors keep 5 percent to 10 percent of their assets in gold to protect against a market he sees as increasingly risky.)

Q: When it comes to investors looking for something that will hold its value when other markets tumble, do you think there’s much overlap between the buyers for gold and for bitcoin and other cryptocurrencies?

I think there’s some, but I’m not convinced there’s a huge amount of overlap. I don’t know anybody who views bitcoin in the same lens as gold, that bitcoin is a store of value like money, like gold. They see it as a highly speculative thing.