“Gold is proving to be a durable investment at a time when the cash rate is at an all-time low, more than 5% lower than what it was pre-GFC.

“Back in 2007, $200,000 in a term deposit would be earning close to $16,000 per annum in interest. Now they’ll be lucky to get $6,000 so investors are looking for alternatives in this difficult environment.”

“Gold is proving to be the ultimate durable investment even when the market is volatile or uncertain.”

Eliseo says that periods of low interest rates tend to be the best environment for gold.

”Long run data highlights that the average return on physical gold is over 20% per annum in years where real interest rates are below 2%, like they are today. So low interest rate environments like the one Australia is experiencing are typically the sweet spot for gold.”

Eliseo said investor concern that gold doesn’t pay a yield is unfounded.

“The capital appreciation, and the long run inflation protection makes up for the lack of income, with gold rising by over 8% per annum since the turn of the century. Not only is that better than cash, it’s also better than property and even the Australian share market over that time period”.

Concern over the volatility of gold as an investment should not discourage investors, says Eliseo, noting the RBA’s own investment in gold: “What many investors don’t realise is that the RBA has for decades maintained a core holding in physical gold.”

“It’s not just the RBA either, with data from the World Gold Council highlighting the fact that in 2014, central bank gold purchases totalled nearly 500 tonnes. In the last 50 years, only once have central banks bought more gold than they did last year.”

“Central banks still see gold as an important component of their monetary reserves, and have been building their holdings since the GFC hit.”

Their behaviour makes sense in an environment of higher economic uncertainty, with Eliseo stating that “sadly, the problems of lower growth and higher debts aren’t resolved, otherwise the RBA wouldn’t be cutting rates again.”

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Buying gold?

“Gold right now may well represent a once in a life time opportunity for Australian investors,” said Jordan Eliseo, the Chief Economist, ABC Bullion.

“The recent fall in gold price offers an opportunity for investors to get in at a discount price, with a range of bullish factors likely to push prices substantially higher over the next five years,” he said.

Eliseo was speaking at the ‘International Precious Metals & Commodities Show’ in Munich about Australia’s opportunity to take advantage of buying gold.

The ‘International Precious Metals & Commodities Show’ is an international conference dedicated to investments in precious metals and commodities that has taken place annually in Munich since 1985.

“Right now sentiment towards precious metals is at record lows – which typically means we’re getting close to a bottom,” Eliseo said.

“Gold is the only asset that has not only endured, but prospered throughout every period of economic turmoil the past five millennia have thrown at humanity,” he said. “It’s pretty bold to think this time will be any different.”

Eliso said that gold was undervalued as an asset despite its importance to Australian economy. “Australia is the second largest gold producer in the world, and while it has consistently outperformed most traditional assets for a decade, it is not represented at all in mainstream portfolios.”

“The biggest demand for physical gold is the Asian market, in particular the Chinese, and we would do well to treat gold, not just another commodity export but as a key plank in furthering our banking and wealth management relationships with our neighbours to the north.

Eliseo said that gold also provides a strong hedge against the falling A$ as well as offering a balance to overall portfolio volatility through low correlations.

“With the currency likely to be under pressure in the coming years, gold is perhaps the smartest way of getting non-$A exposure into a trustees portfolio, as it will also balance out equity market risk,” said Eliseo.

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