Newscasts - Market Talk: Does the current gold rush have legs?
27/03/2025 20:44
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_iytv92dg&referenceId=tag:reuters.com,2025:newsml_RW217327032025RP1_930&pageId=Newscasts Source: 'Reuters - Business videos' Description: Ben McMillan, chief investment officer and co-founder of IDX Advisors, explained what's driving gold prices to multiple record highs this year, and why commodities in general "are starting to look quite a bit more interesting." Lisa Bernhard has more. Short Link: https://refini.tv/4jbsIdp Video Transcript: The gold rush is on. Ben McMillan of IDX Advisors, the price of gold hit another record high today, something it's done multiple times this year. Give us some perspective on the extraordinary pace of buying. Yes, absolutely. So, when it comes to gold, the big change we've seen among the demand has really been the central bank stepping in, and this is post-COVID. And so, when you go back and look at kind of global central banks buying of gold pre-COVID versus post, it's literally orders of magnitude higher, and that's driven by not only China and India, but increasingly emerging market banks. And this is for kind of the host of reasons, moving away from Dollar, safe haven, concerns about tariffs more recently. Even when the US moved to seize Russian dollar-denominated assets, that's when you really started seeing a lot of talk among China and India in particular, and they started- those central banks started selling Treasuries to buy gold. So, this is very emblematic, I think, of the times that we're in, and the central banks have really stepped up and driven these prices, and we continue to expect that trend to persist. Can you compare it to the pace of gold buying in years past? Absolutely. So, when you look at kind of- if you go back 5, 10, really 15 years, central banks were buyers of gold but not nearly at the rate that we've seen. A lot of the marginal demand for gold has been jewelry, India being a big component, ETFs have emerged on the scene. But again, when you get past COVID - and that's when central banks really started to collectively have concerns about fiat risk, as it relates to the Dollar - their buying of gold, like I said, went up orders of magnitude. So, if you look from, for example, in the last couple of years, central banks have added roughly 3,000 metric tons of gold to their reserves, and that compares to an annual average of about 100 metric tons to 200 metric tons from 2010 to 2021. So, this is a demonstrative increase for the central banks. And let's also not forget, too, I mean, central banks are big players. And these aren't speculative traders or hedge funds or things like that. They are buying gold for the next 5, 10, 20 years. So again, this is a secular trend that shows no signs of really slowing down. Most investors know gold as a so-called "safe haven", but I'd love you to drill down even more specifically as to what is driving this demand. Absolutely. So, when you look at the central banks in particular globally, traditionally, they've been very large holders of US Treasuries, which of course is Dollar exposure. And after COVID, where the US literally printed hundreds of billions of dollars out of thin air, and in fact, roughly 50% of all dollars in circulation have been printed since COVID, the central banks looked at that as purchasing power destruction of large parts of their reserves and they moved to start selling those Treasuries, those dollar assets, and buying gold. It was quite literally the same safe haven trade for the central banks that you see a lot of investors doing now. And again, that's not a trend that we expect to reverse anytime soon, particularly when you start layering on all the uncertainty around tariffs, potential trade war escalations. The demand for gold among central banks and investors more broadly, including ETFs, this is literally skyrocketing. And so it's primarily for the central banks it's about preservation of their balance sheets, their capital, their reserves, and the concerns about the US just simply printing too much money. What's your advice to the average US investors? Should they be adding gold to their portfolios even at these high prices? Generally, we think so. And in a lot of the conversations we have with investors, of course, every investor is different, has different risk profiles, but gold is an asset that has been underappreciated for a long time. It's been frankly kind of a sleepy asset up until recent years. And we think we're going back to a period much more like the kind of 1970s and 1980s, even without the hyperinflation associated with that period or the elevated inflation, I should say. We're in a period where higher inflation is going to be the new normal, higher interest rates is going to be new normal, and we definitely think gold has a place in investors' portfolios, even at these levels. Are there other assets similar to gold that you're recommending or that investors seemed to be particularly interested in right now? Generally, hard assets, commodities more broadly, again, are starting to look quite a bit more interesting, and this is for really all the same reasons. Commodities have historically in recent years in a zero-interest rate environment, have not performed that well. Again, with concerns about inflation globally, even concerns about dollar debasement, the broader commodities complex is starting to show signs of life. We think that's interesting for a lot of investors' portfolios. Hard assets in general, we're having lots of conversations about things like infrastructure ETFs, hard assets ETFs, even oil MLPs is an interesting one because it's got commodities exposure with a high-yield component. Of course, you can't talk about this without bringing up Bitcoin. We caution investors that, yes, Bitcoin is very interesting in this respect, but it also comes with much higher volatility profile. So, think about that in the context of a portfolio. But again, when you start thinking about longer term plays to protect against fiat debasement or the devaluation of the Dollar, all of these things we think deserve a look at with investors' portfolios.