Asia’s wealthy prefer physical gold

9 Oct 18

Conservative high net worth gold investors prefer physical bullion over ETFs, says State Street Global Advisors.

Private banks in Asia mainly use ETF vehicles when making active bets on gold based on a short-term outlook, Robin Tsui, gold ETF strategist at SSGA, said during an event in Hong Kong.

For strategic allocations or longer-term investing, buying physical bullion and storing it in a safe remains the norm.

“Asian high net worth individuals that are served by private banks, in most cases, allocate to physical bullion as they love to literally see the gold in a tangible state,” said Tsui, adding that one common gold storage for these individuals is the vault owned by UBS in Singapore.

Gold diversification

Despite a low penetration in the private wealth space, however, Tsui is also optimistic that overall demand for gold ETFs will pick up towards the end of the year, which typically sees higher retail demand from China and India.

That may boost the lacklustre gold price over the short term, he added.

While the escalating trade conflict between the US and China has strengthened the US dollar, gold prices have not performed well in relative terms, year-to-date. Global ETFs investing in gold bullion recorded net inflows of $600m (£459m, €522m), compared with inflows of $8.2bn in 2017 and $21.9bn in 2016.

Tsui said he believes the subdued investor sentiment for gold in recent months may provide an attractive entry point for investors to hedge against inflation and prepare for the aftermath of the stretched valuations in US equity.

Looking at longer term allocations, he added that gold can serve as a better diversification option against the S&P indices than other physical commodities in a mixed-asset portfolio.

Globally, the SPDR Gold Shares ETF has an AUM of $36.32bn, down approximately 20% from end-January 2018, according to FE Analytics. Benchmarked to London bullion market prices, the fund has had a tracking error of 0.25% in the past 12 months. Apart from SSGA’s product, another gold ETF product listed in Hong Kong is managed by Value Partners.