Gold as a popular hedge against geopolitical, economic uncertainty

The gold spot price reached over C$2,900 per ounce this month, surpassing last year’s high of C$2,695, reflecting investor demand amid economic uncertainty.

Inflation, upcoming U.S. elections, war and attacks on cargo ships in the vital Red Sea shipping corridor have all contributed to gold demand.

Central banks have also been buying gold to diversify reserves, especially as inflationary pressures mounted over the last couple of years, said Alfred Lee, a portfolio manager and investment strategist with BMO Asset Management Inc.

BMO launched new gold ETFs this month. The BMO Gold Bullion ETF (available in Canadian-dollar and U.S.-dollar units) and BMO Gold Bullion Hedged to CAD ETF trade on the TSX.

After both equities and bonds tumbled in 2022, many investors became interested in alternative investing, Lee said. “We find gold is one of those default go-to’s in that alternative bucket.”

Like equities, gold has high return potential, and its ebbs and flows have low correlation to stocks and bonds, allowing investors to diversify, Lee said. Even a relatively small allocation to gold in a portfolio can be beneficial, he said.

Investors traditionally had to store gold in a safe or under their beds, he added, but the gold that backs the ETFs is securely vaulted in Canada, insured and regularly audited.

Investors will also be able to trade physical gold stored at the Royal Canadian Mint through Toronto-based digital investment platform Argo Digital Gold Ltd., which will launch its first phase in the second quarter. The new platform is backed by none other than the Sprott family, renowned investors in the space, and Sprott Inc.’s former top executive Peter Grosskopf, now CEO of SCP Resource Finance (formed last year after a management-led buyout of Sprott’s investment banking business).

Investors who want to hedge against the financial system prefer physical over paper gold, said Michael Petch, president and co-founder of Argo: “You have physical ownership and nobody can take that away from you. As you start to get towards paper gold and derivatives, you start to get more and more caught up in the financial system.”

Petch launched the CoinShares Gold and Cryptoassets Index, and one of the first gold-backed stablecoins in Switzerland, noted a release announcing Argo’s launch.

He said Argo chose to store gold for its investors in Canada as it’s one of the world’s two best gold storage jurisdictions, along with Switzerland. “You have a stable climate, you have really strong capital rights in both jurisdictions and [are] well reputed and well regarded,” he said. “The Royal Canadian Mint [meets the] gold tier standard for gold storage.”

As far as the outlook for gold, Lee was positive.

“You have all these different kinds of risk factors in the market such as inflation, such as geopolitical risk, which should be supportive for gold,” he said.