Since January 1, the price of gold through October 1 has risen by 47.6% and the price of silver has risen by 63.7%. Are we in the early stages of a bull market for precious metals?
The primary reasons for continued price appreciation are 1) ongoing purchases of gold by central banks; 2) individual investors are now taking an interest in precious metals; and 3) physical supply deficits. Major investment firms are now getting on board the gold train.
On June 10, JP Morgan Research published a bullish opinion on gold. They wrote, “After three consecutive years of more than 1,000 (metric) tonnes of CB (central bank) gold purchases, the structural trend of higher CB buying has further to run in 2025 and 2026.” They cited policy uncertainty, stagflation or recession, lower interest rates, geopolitical risks, and diversification away from US dollar reserve holdings by central banks as reasons to include gold in investment portfolios as “one of the most optimal hedges.”
On September 16, the Chief Investment Officer of Morgan Stanley, Mike Wilson, recommended that investors shift from a traditional 60/40 allocation of equities/fixed income to a 60/20/20 allocation of equities/fixed income/gold. As US Treasury securities are losing some of their safe-haven status, Wilson wrote: “Gold is now the anti-fragile asset to own, rather than Treasuries.”
On September 17, Jeff Gundlach, Founder and CEO of DoubleLine Capital, recommended in a webcast that investors allocate 25% to gold. Gundlach has made positive comments about gold in the past, so this was not a surprise. DoubleLine Capital manages fixed income and has no precious metals investment products at this time, so Gundlach’s recommendation is unusual because it cannot benefit his firm. Gundlach commented: “So I’m still hanging in there owning gold until such time as we get a totally different regime as regards the deficit situation and the kind of international flow situation, which is now kind of not benefiting the United States. And I think that’s going to be a trend for the next few years.”
On a global basis, the current valuations of equities (common and preferred stocks), fixed income (sovereign, corporate, municipal, and asset-backed securities), real estate, and precious metals are approximately as follows:
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- Equities $124 trillion
- Fixed Income $140 trillion
- Real Estate-Commercial $ 58 trillion
- Real Estate-Residential $287 trillion
- Gold $ 27 trillion
- Silver $ 0.2 trillion
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While neither Wilson nor Gundlach included real estate in their allocation, they represent significant portions of net worth for many families. To get close to the target allocation levels that they talk about for gold, the price of gold would have to rise substantially, or the price of other financial assets would have to decline substantially, or it could be a combination of both. Despite the logic supporting precious metals, few investment advisors are including them in their model portfolio allocations. Thus, I expect gold and silver to continue their upward trends as more individual investors start to participate in the rally.
If you have any questions or comments, please contact me.
Robert G. Kahl
CFA, CPA, MBA