Investors are rushing to put their money into gold as the coronavirus pandemic roils markets worldwide, with one asset manager reporting demand dwarfs the spike seen during the last financial crisis.
“Everybody wants to reexamine gold and it’s not a fringe asset anymore. We’ve been run off our feet,” said Peter Grosskopf, chief executive officer at Sprott Inc., which manages $10.6 billion. “Even though we’re operating virtually, we cannot keep up with the demand to speak with new clients or interested clients. It just keeps climbing.”
The precious-metals-focused asset manager will likely have to hire additional staff to handle its busiest ever period, with demand far surpassing the level seen during the global financial crisis, he said. The volume of inflows jumped fourfold in March from the first two months of the year. In value terms, they reached almost $500 million in the first quarter, with more than $400 million going to the Sprott Physical Gold Trust, compared with outflows of $178 million a year earlier.
Gold demand has soared, pushing prices to the highest in more than seven years, as governments and central banks unleash vast amounts of fiscal and monetary stimulus to help shore up economies hurt by the virus. The wave of measures triggered by the pandemic is likely to have worsened a credit crisis that was already brewing, said Grosskopf.
“You do not need to be a gold bug to believe that gold is the right move to hedge yourself against the financial system right now,” he said. “We’ve entered into an environment of the monetization of debt and the debasement of currency, and all of these governments believe they can control that process; history suggests that they cannot. Gold is the way to hide from that.”
Spot bullion declined 1% to $1,678.93 an ounce, paring this year’s gain to 11%. Prices hit a record $1,921.17 in 2011, and Grosskopf has previously said it’s got a good chance of surpassing that level. Global holdings in gold-backed exchange-traded funds are at a record. They doubled between mid-September 2008, when Lehman Brothers Holdings Inc. collapsed, and the end of 2009.
The recent squeeze in the physical gold market also added to investor interest in Sprott’s business, said Grosskopf, who has 32 years’ experience in the precious metals industry. Spreads between spot prices and futures blew out in March as supply chain disruptions sparked concerns about a gold-bar shortage in New York just before April contracts became deliverable.
While ultimately there was enough supply to honor commitments, the spread in prices showed signs of widening again this month. Grosskopf warned the dislocation could recur when the June futures on the Comex become due for delivery, although supply disruptions are unlikely to last. The squeeze has led to increased scrutiny on the system in which the amount of physical gold in circulation is a small percentage of total contracts outstanding, he said.
“We do think it’s going to become a long-term preference for investors to have fully allocated, physically backed storage and that’s a big difference to the way this market has functioned in the last 10-to-20 years.”
Swiss lender Union Bancaire Privée said this month investors should target physical bullion over some forms of paper exposure, echoing comments from DoubleLine Capital LP’s Jeffrey Gundlach who said buyers should be aware that holding shares in so-called paper gold doesn’t amount to having bars.
Gold equities are an under-invested sector and may be the only part of broader stock gauges to post strong growth in the current earnings season, according to Grosskopf. While Sprott runs a gold shares fund, there’s more investment in the physical trust as it’s traditionally easier for new investors to accept they’re holding bullion as a hedge for other currencies, he said.
“Demand has been global, it’s been persistent, it’s been building, it’s been broader,” he said. “It’s a totally different rally than we’ve seen in past gold bull markets.”
© Copyright 2023 Bloomberg News. All rights reserved.