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3 Reasons Family Offices Should Invest in Gold

November 15, 2013 3:51 pm
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Probably the most important duty of a family office is to position the portfolio to grow over the market average for the long term. That means anticipating future trends in asset classes.

With gold declining in value, there are three main reasons why family offices should invest in The Yellow Metal for long term gains: protect against future inflation, profit from economic growth in China and India, and to diversify the holdings of a portfolio, with the possibility of a healthy dividend income.

Precious metals like gold and silver have always been traditional safe haven assets for when investors lost confidence in fiat currencies due to inflation. After the first two rounds of quantitative easing, the acquiring of trillions in bonds by expanding its balance sheet, by the Federal Reserve, the exchange traded funds for gold, SPDR Gold Shares (NYSE: GLD), and silver, iShares Silver Trust (NYSE: SLV), both soared in value. But that did not happen after Quantitative Easing III was announced by Federal Reserve Chairman Ben Bernanke in September 2012.

But gold should rise in the future due to quantitative easing by global central bankers, which should bring about rising prices.

Related: 3 Reasons Family Offices Should Invest in the Staffing Sector

That should result in inflation, which decreases the value of paper money and increases the value of gold. As former Secretary of State and Secretary of Treasury George Shultz stated in a Wall Street Journal interview, “The Fed doesn’t have an unlimited capacity because when it buys the debt what it’s doing is monetizing the debt. Sooner or later that has to get out into the economy. Can’t be held forever.”

When that happens, inflation will set in, increasing the value of gold and silver.

The two biggest consumers of gold are also starting to buy more, too. According to the World Gold Council, China is purchasing gold at a rate that will reach a record 1,000 tons this year, a jump of 29 percent. The China Gold Association reports that gold consumption soared by 54 percent to 706.36 tons in just the first six months of 2013.

It is not just China, however: Over the last decade, there has been a 35 percent increase in gold jewelry, bars, and coins in China, India, Indonesia and Vietnam. In a recent interview, Richard Pouldon, Executive Chairman of Wishbone Gold (OTC: WISHY), pointed out that the buying was shifting towards the metal itself, not securities.

Investing in gold now will put family offices in front of the burgeoning demand from the world’s two most populous nations.

There is also a need for diversification in an investment portfolio that gold and silver holdings provide for a family office. It is a classic hedge against economic turmoil. Companies in the sector range from Goldcorp (NYSE: GG), the world’s biggest, to Wishbone Gold, a small cap with promising holdings in Australia. If dividend income is desired by the family office, there is Yamana Gold (NYSE: AUY), a favorite of financial columnist Jim Jubak, that has a 2.80 percent yield. Goldcorp has a dividend of around 2.50 percent, with Newmont Mining’s (NYSE: NEM) even higher at nearly three percent.

Investing in gold and silver will prepare and diversify the holdings of a family office to profit from any market conditions in the future.

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