John Reade (WGC): “The Role of Gold Is Still Very Poorly Understood”

Gold continues to reach new heights. And yet, interest among retail investors, particularly in Western countries, remains very low. Demand is mainly driven by institutions, particularly central banks in emerging countries. The monetary role of gold is still poorly understood... even though the yellow metal has been at the heart of the international financial system for millennia. How can this lack of democratization be explained? Why are other assets more attractive to investors? What obstacles prevent gold from generating wider enthusiasm? To understand these dynamics, we interviewed John Reade, one of the world's leading gold market strategists. Now Director of Strategy and Research at the World Gold Council in London, he has been a market specialist for nearly 40 years, having worked for some of the world's largest international investment banks.

Julien Chevalier: How do you explain the relative lack of interest in gold among Western retail investors, particularly in Europe and North America? At the same time, the appetite of institutional investors – both corporates and central banks – has never been stronger.

John Reade: While it’s true that net physical investment demand from Western Investors remains well off the levels seen a few years ago, we believe that fresh buying interest remains relatively strong. What appears to have changed is that holders of physical gold products, who have seen such strong returns over the past few years, are cashing in and taking some profits. Buying remains decent, according to many of the physical traders we speak to, but selling back is strong too.

In some markets the return of higher interest rates may be prompting some of this profit taking. In Germany, one of the reasons we heard for strong buying after the COVID-19 pandemic was very low interest rates, so higher interest rates on savings could have triggered some profit taking. 

In the US, a strong equity market performance has reduced the perceived need to diversify and protect wealth, alongside the impact of higher interest rates. There are signs that Western investment is beginning to improve, at least in Europe. Gold investment in Europe saw year-on-year recovery in the first quarter of this year, albeit from a very low base. Regional bar and coin demand jumped to 26t, largely due to growth in German-speaking markets. 

Julien Chevalier: Do you think central banks' growing interest in gold - with record buying levels - could eventually influence the behaviour of retail investors?

John Reade : In some markets the signalling value of the central bank buying gold appears to help sentiment of retail investors – particularly in China and perhaps India too. This could be another reason why investors living in Emerging Markets have been keener to buy gold than their Western market counterparts, as EM central banks have made up the majority of all central bank buyers over the past decade or two. 

Julien Chevalier: In your view, is it a mistake to contrast gold with so-called "future-oriented" assets, such as stocks linked to AI, defence, or the green transition – given that gold is a timeless and universal asset?

John Reade: Investors should cautious in trying to pick winners. Crowding into hot sectors can certainly work for some, but picking those sectors is tricky. Rather we believe in building a diversified portfolio and to that end gold is a great diversifier of equity risk. Gold is a highly liquid asset that benefits from diverse sources of demand: it is an investment, a reserve asset, a consumer good in the form of jewellery, and a component of modern technology. It delivers long -term returns, diversification and liquidity which combined, make gold a complement to equities and bonds in a portfolio. 

Julien Chevalier: Has the distorted perception of past equity and bond performance, fuelled by more than two decades of cheap money, helped to mask the strategic role that gold can play in a portfolio?

John Reade: We don’t think this is the case. Historical performance of gold stands up very well in comparison to other more mainstream assets over the past 5, 10 and twenty years. We believe that there is a lack of understanding about the role that gold can play in an investor’s portfolio. The World Gold Council is committed to improving understanding of the case for gold and offering research, insights and educational tools to investors. 

Julien Chevalier: Do you think that the “safe-haven” image associated with older generations is holding back the interest of younger investors in gold today? Has the success of crypto-currencies and technology stocks permanently relegated gold to second place in the imagination of retail investors?

John Reade: Younger generations may have different motivations for their overall investment strategies, and it is possible that there needs to be more education around gold’s role in a portfolio to provide long-term returns, liquidity and diversification. While some cryptocurrencies might claim to be digital gold – these are very different assets – and in fact, can be complementary. 

Younger investors have also seen risky assets perform very well since the global financial crisis. Although there have been corrections in equity markets, these have been short-lived and “buying the dip” has often worked well. This may not always be the case and after deeper, longer corrections, it’s likely that younger investors will learn the lessons that older generations have already learnt, and this could increase the attractiveness of gold to the next generation of investors.

Julien Chevalier: Why do you think gold is more relevant than ever for retail investors in the current climate of economic and geopolitical uncertainty?

John Reade: Gold is a proven hedge against inflation; it performs well in a range of economic scenarios and is a store of value in uncertain economic and geopolitical times. It is for these reasons that we are seeing increasing demand for gold and sustained price momentum.

But with government deficits and debts growing rapidly, there is a sense amongst some investors that we are approaching a time of great monetary and fiscal uncertainty. If this proves to be the case, gold could play a much more important role in portfolios than its already-strong track record since the turn of the millennium.