Seeking solutions to investment challenges: The World Gold Council Investment Summit

4 July, 2018

The World Gold Council held its inaugural Investment Summit this year, to assess long-term challenges facing investors and gold’s role within that landscape. With a keynote address from former Federal Reserve Chairman, Dr Alan Greenspan, the Summit was attended by industry experts, asset owners, central banks, academics and official institutions from around the world. World Gold Council managing director Natalie Dempster explains the rationale behind the Investment Summit.

Q: Why did we decide to hold the Investment Summit?

A: The world is in the throes of seismic change, as the balance of power shifts from West to East. China’s economy is expected to become even stronger over the coming years, while the US grapples with a budget deficit of more than US$650bn and profound long-term challenges, including soaring healthcare costs, falling productivity and rising inequality. Europe is prey to many similar issues and its population is ageing fast. In such an environment, we felt it would be useful to take a considered look at the impact of macro-economic and political change on the investment landscape and to assess how investors should best respond.

Q: What key economic trends were identified at the Summit?

A: As China becomes the pre-eminent global superpower and the West faces broad socio-economic challenge, geopolitical tensions could develop and the US dollar’s status as the premier reserve currency will almost certainly come under threat. As Dr Greenspan highlighted, US Federal debt is almost equivalent to annual GDP, which could prove hazardous if not addressed. And Europe is exposed to difficult, long-term tensions, reflecting imbalances between Germany and the rest of the Eurozone. In contrast, emerging market countries, especially China, will experience rising income levels, which is expected to have a strong impact on future demand for gold.

Q: How might these trends affect investment strategies?

A: Years of low or no growth have taken their toll on public and private sector savings, a situation exacerbated by record low interest rates and ageing populations. For pension funds and insurers, cost of execution and liquidity are paramount in this environment, as is the search for long-term, sustainable investments – including gold. Sovereign wealth funds are showing a marked interest in alternative investments, while central banks have become net purchasers of gold, even as they increase their holdings of the RMB and reduce allocations to the dollar.

Q: Where does responsible investing fit into this environment?

A: Environmental, social and governance (ESG) issues are increasingly important, to investors and other stakeholders. Our Summit assessed whether sustainable investing can improve long-term returns and if so how. We also discussed a move towards
increased engagement between company owners and management, working collaboratively to drive positive change. And we touched on the need for greater clarity around performance measurement and greater alignment on definitions.

For pension funds and insurers, cost of execution and liquidity are paramount in this environment, as is the search for long-term, sustainable investments.

Q: What about cryptocurrencies? Are they considered a long-term investment tool?

A: Cryptocurrencies have erupted onto the world stage over the past decade, particularly Bitcoin, which still accounts for around half the market. Leading commentators at the Summit suggested however, that purchasing these currencies is more akin to speculation than investment, as they are volatile, uncorrelated to any other asset and unreliable in times of stress. Blockchain, the technology that supports crypto-assets, was singled out as having significantly more long-term value both in the investment world and in society more broadly.

Q: What role might gold play over the long term?

A: The World Gold Council has long believed that gold is well-placed to help investors address some of the  key challenges they face today. The Investment Summit indicated that leading figures in the market agree. Gold is liquid and an effective hedge against geopolitical risk, market volatility and inflation. It also delivers long-term performance, outperforming bonds, equities and certain alternative assets on a 10 and 20-year basis.

Institutional investment in gold is widely expected to increase over time as understanding develops and there is greater access to data and analysis on gold’s role as an investment asset. Chinese investment in particular is forecast to increase, as financial reforms are introduced and capital controls are lifted. Retail investors continue to show strong interest in gold, particularly German households, who are now the third largest retail investors in the world.

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