An employee handles one kilogram gold bullions at the YLG Bullion International Co. headquarters in Bangkok, Thailand, Dec. 22, 2023.
Chalinee Thirasupa | Bloomberg | Getty Images
A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
With gold prices up roughly 25% this year, the precious metal is in such demand that Costco has capped how many gold bars shoppers can buy in a day. A recent HSBC survey of affluent investors found that gold allocations had more than doubled this year from 5% to 11%.
High-net-worth individuals are getting in on the action too, bankers to the wealthy told CNBC, even if they aren’t buying gold bars along with rotisserie chickens. HSBC’s James Steel said the asset’s safe-haven appeal has been bolstered by trade war anxieties and geopolitical tensions.
“Gold is a friend of uncertainty,” said the chief precious metals analyst.
Investors in Asia and the Middle East have long invested in physical gold due to currency fluctuations, high inflation and cultural affinities. Edmund Shing, global chief investment officer at BNP Paribas Wealth Management, said overseas family offices have allocations as high as 5% to 10% in physical gold or gold-backed investments.
However, J.P. Morgan Private Bank’s Stephen Jury said there has been a noticeable uptick among high-net-worth U.S. clients who want to diversify from the depreciating U.S. dollar.
“If you’re buying euros or yen and you need to buy an underlying security with that currency, that starts to get a little bit more complex for most clients,” said Jury, the private bank’s global commodity strategist. On the other hand, investing in gold is “easier to get their head around,” he said.
For short-term gold trading, futures are a popular option, according to Steel. Investing in physical gold or ETFs is more attractive to investors who plan to buy and hold, he said. Since investing in bars and bullions usually comes with insurance and storage fees, it takes a higher allocation to make it worth your while, he added.
There are a slew of options, some more expensive than others. Jury recommended private bank clients invest in unallocated gold held in a J.P. Morgan vault, meaning they have a claim to the gold’s value but do not own a specific bar and can’t take it. It comes with lower fees than ETFs or allocated bars. Clients can buy a fraction of an unallocated bar for $250,000, whereas buying an allocated bar of 400 ounces costs about $1 million and incurs insurance and storage fees.
However, the more paranoid gold investors aren’t deterred by fees and higher minimums, according to Jury.
“Some clients don’t like to do that because they think the world’s coming to an end, and they want to hold the gold and know that it’s their bar that belongs to them, and they can take delivery of that bar at any time,” he said. “As people get wealthier and get older, they get a little more cautious, and that’s putting it diplomatically.”
Some clients want to keep their gold bars with them, with one telling Jury that she planned to bury it in her garden.
“I said, ‘Please don’t tell me that, and please don’t tell anyone else that,'” he recalled.
Banks advise against keeping gold at home due to security risks and the difficulty of selling gold on the open market. They take numerous precautions, such as not disclosing vault locations and running background checks on clients who request to visit, Steel said.
Jury said only clients with very large gold holdings, likely in the range of $100 million, can tour J.P. Morgan’s vault in London.
“It would have to be a good reason for us to stop and show somebody their metal,” he said. “But it can be done, as in all things, if the amounts are large enough.”
Investors seeking the utmost security can opt for military bunkers turned vaults. Swiss Gold Safe has two such vaults deep in the Swiss Alps, according to COO Ludwig Karl. Many clients choose to diversify their gold holdings across multiple countries, including Singapore. Some go as far as doing their own audits on gold held at Swiss Gold Safe, he said.
“Most of our clients are from first-world countries,” Karl said. “However, our clients have lower trust in government or financial systems or are trying to build a backup or insurance plan by holding precious metals outside of the banking system in a neutral and safe country.”
Steel said to get more investors to flock to gold as a safe haven they would have to be even more worried.
“If you look at geopolitics and economic policy uncertainty as being drivers, then we would have to have an even higher geopolitical risk thermometer than we have now,” he said. “It would have to be pretty darn high.”
