Source adds to gold exchange traded product listings, but sentiment to bullion weakens

Exchange traded product provider Source has launched a physical gold exchange traded product denominated in euros on XETRA, complementing the existing listings in US dollars and sterling on the London Stock Eexchange and SIX Swiss Exchange.

The Source Physical Gold P-ETC, which raised over $1.2bn in assets is now among the largest physical gold products of its type globally.

Notwithstanding this popularity, investor opinion is increasingly divided about the value of gold as an investment.

Armstrong Investment Managers said recent multi-asset research on correlations and volatility should “raise alarm bells for large allocations”.

Ana Cukic Armstrong, managing partner, noted: “We believe that more consideration is needed of the risks as well as the benefits.”

She noted implied gold volatility was now the same as equity volatility, and it has has tracked equity volatility since 2008. Furthermore, over the past three years, the correlation between gold and the S&P 500 has risen to almost 0.8 – questioning gold’s benefit as a non-correlating asset class.

“Investors hoping for a diversification benefit from gold holdings may be badly let down. As with all investments that seem to be perfect, when they fail, they fail spectacularly,” Armstrong said.

A portfolio diversified between equities and silver was better now for non-correlation than one between shares and gold.

Armstrong’s firm has more than halved the exposure to gold of its Diversified Dynamic Solution since a peak of 11% last year, to below 3% now.

“Investors should not view it as a safe haven without its own inherent risks,” she said, adding many holders had become complacent about risks. Because no sell-off has occurred for so long, if one does come, “the magnitude would be similar to the losses suffered by equities in past crises,” she predicted.

But Chris Goolgasian of State Street Global Advisors said gold is not yet in bubble territory. One measure of this, he said, would be a proliferation of ways for investors to buy gold exposure.

“From an investable perspective, we have not seen anywhere near the proliferation of products in comparison with the explosion of tech-related products which arrived on the market in the late 1990s and early 2000s”.


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