Gold is one of the most frequently reference, heavily traded and invested in commodities. However, it’s also a misunderstand asset class, indicating that demystification and education is necessary to enhance investors’ views of bullions.
That’s a sign gold is an opportunity-rich asset class for advisors looking to better connect with clients on an educational level – relevant because the yellow metal breeds both curiosity and misconceptions. Additionally, bullion is highly relevant at a time of high inflation and rapid debasement of fiat currencies around the world.
Advisors know this, but many clients do not: There are four factors that primarily determine gold’s price action -- jewelry, investment, technology and central bank net purchases. Fortunately for clients craving the portfolio diversification offered by commodities, including gold, some of those tailwinds and others are in place today for more upside for the yellow metal.
While education doesn’t necessarily mean advocacy for a particular asset or investment product, the stars could be aligning for increased gold education and clients could appreciate that.
Fine Points About Gold
Thanks to the SPDR Gold Shares (NYSEARCA: GLD), world’s largest gold-backed exchange traded fund, and other comparable ETFs, gold investing is more democratized and accessible, but there’s more to the story.
“Among individual investors surveyed who do not hold gold ETFs, only 15% say they’re familiar with gold ETFs and 63% are not familiar,” according to State Street Global Advisors (SSGA). “What this suggests is that without the right education, investors stick to familiar investments. To help investors expand their horizons and understand gold’s potential benefits, financial advisors (FAs) should engage investors in conversations about the asset class.”
Interestingly, the same SSGA survey confirms that gold-interested investors that work with advisors are far more aware of bullion and ETFs such as GLD. Ninety-one percent say they’ve discussed gold with their advisors while the same percentage say their advisor has illuminated them to the various ways the yellow metal is investable. Eighty-nine percent said their advisor highlighted the benefits of allocation a portion of their portfolios to gold.
“We believe that the conversations FAs facilitate and the education they provide on gold can potentially impact investors’ decisions on whether or not to invest in the asset class,” adds SSGA.
Proof Gold Education Matters
Again, education and advocacy are two different things. Horses can be led to water, but that doesn’t mean they’ll drink. However, it’s clear that one of the primary stumbling blocks when it comes to broader acceptance of gold as an investable asset class is clients’ lack of education/knowledge.
Thirty-six percent of those polled by SSGA said the reason they don’t hold bullion in their portfolios is because they don’t how to accomplish that objective. On a related note, 21% said storing gold is too cumbersome – an issue solved by gold ETFs. Point is gold is a golden opportunity for client education.
“We believe that this gap in knowledge may heavily impact the fact that only 11% of survey participants who do not currently have gold in their portfolios say they are likely to invest in gold in the next 6-12 months, and more than half (52%) are not likely. Approximately one-third (37%) of surveyed investors are unsure,” concludes SSGA.