Nearing an all-time high, gold again reigns supreme as a store of value, though clients see and value it differently.
Three advisors at Canadian family offices share how their clients invest in gold. From left are Athas Kouvaras of Richter, Victor Godinho of Kismet Wealth Group, and Keith McLean of Viewpoint Investment Partners.
When it comes to gold, there is no one golden rule for family offices. Rather, the approaches are likely to be as diverse as the ultra-high-net-worth clients they represent.
Still, as an investable asset, gold has certainly garnered a lot of attention in recent months, as it hovers near an all-time-high price per ounce. Driving that interest is concern over inflation amid even larger worries that it could persist as economic conditions deteriorate, resulting in stagflation.
“That tends to be the ultimate period where gold does very well because it combines its defensive characteristics with its inflation-hedging characteristics,” says Athas Kouvaras, portfolio manager and client relationship and development manager at Richter Family Office in Toronto.
The preferred investment strategy at Richter is allocating capital in the portfolio to gold via a liquid, low-fee exchange-traded fund (ETF) such as the SPDR Gold Shares ETF (GLD), which is backed by the physical asset.
But some clients are more “gold bugs” than others, he says.
“A few prefer to own physical gold,” he says, noting this strategy involves storage costs, which can be particularly high when allocations exceed $1 million.
“But for them, there is psychological comfort knowing that if the whole world goes to hell in a handbasket, they have this few million dollars in real gold, whereas most wealth is really nothing more than ones and zeroes on a line of code at the bank, right?”
Gold bugs or not, most clients recognize that gold’s relative scarcity compared with other commodities — combined with the widespread belief that it’s a store of value, as well as being an alternative reserve currency to the U.S. dollar — makes it important to own, Kouvaras says.
Typically, the allocation in a portfolio does not exceed 3 per cent of total assets, he adds.
Yet the challenge for a family office adviser is getting a full picture of clients’ wealth in gold because many also own physical gold — often jewellery — in a safe in their home or safety deposit box at a financial institution.
“There is a cultural aspect for many clients when it comes to gold,” says Victor Godinho, managing partner and advisor with Kismet Wealth Group, a Toronto-based multi-family office.
“We have some clients who have as much as 7 to 10 per cent exposure when you account for jewellery, other precious metals, watches and gemstones.”
Godinho adds that gold is a common gift at Indian weddings, including his own. “It’s tradition when the groom is introduced, that every woman in the bride’s family gives you a piece of gold.” Brides often receive gold jewellery from the groom’s family.
Driving tradition is the notion that gold is a long-term store of wealth. “After real estate, gold is like the next best thing for generational wealth,” Godinho says. “Your mom would pass down to her son’s wife the same jewellery set that was given to her from her mother-in-law.”
For some clients, it’s not just gold; it’s investment-grade diamonds and high-end wristwatches, all of which are increasingly viewed as assets uncorrelated with stocks and bonds, Godinho says. “Especially during COVID, there was a lot of talk with clients about the need to hold uncorrelated or off-book assets.”