“The gold price hit $2,685 an ounce in September, as the widening of war in the Middle East confirmed the metal’s historic position as a safe haven. This new high came even as stock and bond markets remained strong, meaning gold isn’t necessarily an alternative to traditional self-sufficient asset classes,” van Rijn said in a note.

Since the start of January, the price of spot gold has risen by almost 32 per cent, to $2,721 per ounce (source: BullionVault). Geopolitical uncertainties – including those caused by what appears to be a close US election, cuts in interest rates, and other forces – have pushed up the price of the yellow metal.

Robeco sustainable multi-asset solutions has recently increased its exposure to gold through the purchase of exchange-traded commodity (ETC) derivatives and by holding the equities of gold miners.

“People who are bullish on gold are sometimes pejoratively described as ‘gold bugs,’” van Rijn added. “They are said to be stuck in the past, having failed to realise that financial markets have evolved since the end of the Gold Standard in 1971.” But he highlighted how gold’s 28 per cent return so far in 2024 has particularly caused a stir, as it has outpaced even strong equity returns.

. “We continue to like oil and gold as effective portfolio hedges amid market uncertainties,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said. “While markets have recently scaled back expectations on the pace of the US Federal Reserve's easing, the central bank has nonetheless kicked off its rate-cutting cycle with more cuts to come. Gold has historically rallied by as much as 10 per cent in the six months after the first Fed rate cut, and ETF demand is gathering momentum.” 

Van Rijn emphasised that what differentiates it from most commodities is that gold lasts forever. “All the gold that has ever been mined below ground still exists above ground. That fundamentally affects the supply potential,” van Rijn said.

“Still, the demand outlook will be key. It seems that armed conflicts and political unrest haven’t had much of an impact on financial markets. Yet, global conflicts have been supportive of gold demand. In countries that are under sanctions, or have capital controls, gold remains a great alternative for cash in the bank,” van Rijn added.

The GFC’s watershed moment
Van Rijn said that the Global Financial Crisis (GFC) of 2008 to 2009 was a pivotal moment that kickstarted gold’s return to favour among central banks. As some financial institutions faced collapse without bailouts, and as cash in the bank that was previously thought safe was under threat, gold came back as an inarguable store of value.

“In general, central banks turned from sellers to buyers after 2009, when the GFC became a watershed event to alter their thinking about the role of gold,” van Rijn continued. “Russia, in particular, has been a big buyer (1,300 tons) since sanctions were first imposed in 2014. Some also say that China has been buying because it is afraid of US sanctions potentially making its access to US dollars difficult.” 

In 2024, a Gold Council Survey cited 69 per cent of central banks as saying that in five years’ time, a larger percentage of their reserves will be held in gold, at the expense of US dollar holdings. “Currently, just 17 per cent of global central bank reserves are held in gold,” van Rijn added. “There is a strong divergence though between the high levels seen in Western economies (60 to 70 per cent) and very low levels in China (5 per cent) and India (10 per cent). It is clear where future purchases may come from.”

Tactical allocation to gold
“But as multi-asset investors, we look at gold clinically. From a risk/return perspective, there is reason to allocate to gold. Since our 1992 white paper, returns have been healthy. Though its volatility is a drawback, gold offers diversification because it has been lowly (0.1-0.2) correlated with US Treasury bonds and equities, and actually has a negative correlation (-0.2) with other commodities,” van Rijn continued. “We would definitely not describe ourselves at Robeco as gold bugs – yet the multi-asset team has started a tactical allocation to gold, next to our broad allocation to commodities. Central bank demand, growing Asian wealth and right-wing liberals are the main reasons to be bullish.”