Gold demand has been so strong in 2016 that the largest gold exchange-traded commodity (“ETC”) has temporarily suspended the issuance of new shares to investors.
While Blackrock’s demand problem is good news generally for gold and silver investors, it also highlights the risks of holding “paper gold” instead of actual physical bullion. Because of the share shortage, IAUs market price could temporarily deviate from the actual price of gold.
Blackrock’s “IAU” ETC is an $8 billion exchange-traded security that aims to track the price of gold bullion by holding physical gold in its portfolio.
However, investors do not actually take possession of physical gold: they only receive shares in the ETC as they would any other paper security.
In a press release, Blackrock revealed the reason for the share suspension: “Since the start of 2016, in response to global macroeconomic conditions, demand for gold and for IAU has surged among global investors.” ETCs have to file to register a new set of shares if demand outstrips supply.
Gold bullion is the best performing major asset in 2016. According to Bloomberg, gold thrives in a low interest rate environment and is a haven in times of turmoil. Slowing global growth may hurt the U.S. economy and prompt the Federal Reserve to delay interest increases this year, increasing the appeal of precious metals even more.
Paper assets are found in almost every portfolio, but we recommend not relying on ETFs or ETCs to get your gold exposure. Having actual physical bullion in your own safe or retirement account provides an extra level of privacy, security and peace of mind along with diversification.
Gold Earns New Analyst Fans
Many analysts are encouraged by the strength in the gold market:
Legendary technical analyst Louise Yamada told King World News she has gone bullish on gold. This comes just a few months after she warned that the stock market looked overbought: a call that looks remarkably prescient now.
Russ Koesterich, global chief investment strategist at BlackRock, said Friday that investors should consider buying gold on the expectation of more volatility in the market this year. Gold does a good job of moving in the opposite direction when volatility spikes, he said.
Precious metals analyst James Turk pointed out that gold is still undervalued on a historical basis. He believes that current central bank policies globally could lead to currency devaluation and/or problems in the banking system, thus the best way for investors to protect themselves is by owning physical gold and silver. He also believes that silver is relatively undervalued with respect to gold and could offer even more upside potential in the near term.
DON’T WAIT TO MAKE YOUR MOVE
In times like these, having a little gold or silver in the home safe is of considerable comfort to anyone, regardless of your exact view of the markets ahead, your political leanings or even your age.
Please call us at 800-462-0071 before it is too late.
