George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, joined Keith Black, Managing Director of RIA Channel, to discuss the gold market of the last twenty years and the impact that ETFs have had on the gold markets.
It has been twenty years since State Street Global Advisors launched the SPDR(R) Gold Shares (GLD(R)). GLD democratized gold investments, making it feasible for individual investors to access the gold market and overcome the prior barriers to investment.
Over the last twenty years, the jewelry market has declined from 80% of demand to 50%, while investment demand has grown from 10% to 30% of the gold market, with central bank purchases now reaching 15% of demand. A key driver of gold demand over the last fourteen years has been purchases by emerging markets central banks seeking to diversify their reserves relative to large US dollar holdings.
The 2024 Gold ETF Impact Study showed that 38% of ETF buyers owned gold prior to their ETF purchase, up from 20% in the prior year survey. Among US demographic cohorts, a larger percentage of millennials own gold (two-thirds) relative to Generation X (one-third) or baby boomers (20%).
Investors add gold to their portfolios for protection and diversification, as it typically has a low correlation to both stocks and bonds and positive performance during weak stock markets. Gold also offers protection from sustained high inflation, such as a two-year period when inflation exceeds 5%. In addition to its protective role, gold has offered superior performance in some years, such as 2024, when gold prices increased by 33% through November.
Gold historically had an inverse correlation to the US dollar, strengthening during times of dollar weakness and weakening during times of dollar strength. Since 2008, gold has experienced an asymmetric relationship relative to the US dollar, with gold strengthening when the dollar is weak, with little correlation between gold prices during times of a strong US dollar.
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