GLD Rallies, Tracking Rising Geopolitical Unrest

Rising global geopolitical risks, including the developing war between Israel and Hamas, are sparking a spike in the price of gold in what may be seen as a typical defensive move. 

The precious metal, as tracked by the SPDR Gold Trust (GLD) ETF, jumped 5.7% from an Oct. 5 low. That beats the 2.7% gain by the S&P 500 Index as measured by the SPDR S&P 500 ETF Trust (SPY) over the same period. 

Despite what appears to be a hedge against the broader equity market volatility, financial advisors aren’t easily convinced of the benefits of gold in a diversified portfolio. 

“Gold is on a run because the market was down in September, so it’s not a long-term move,” said Tim Holsworth, president of AHP Financial. “I don’t care about gold, and I won’t buy it.” 

The basic portfolio management argument against owning gold is usually grounded in the reality that it has a lousy long-term track record and doesn’t generate income. That might help explain the more than $3 billion worth of net outflows from the $51.9 billion GLD this year. 

Gold and GLD ETF Rise, Tracking War, Inflation and Global Unrest 

While GLD is up 11% over the past 12 months, it’s only 2.1% higher this year, and its 10-year annualized return is 3.5%. 

By comparison, SPY is up 14.1% this year, 19.8% over the last 12 months, and has a 10-year annualized return of 11.8%. 

Jon Ulin, founder of Ulin & Co. Wealth Management, views gold as a “sometimes” allocation, but not a long-term position. 

“Asset allocation theory suggests investors should hold exposure to different types of assets with different characteristics to ensure that they balance off risks through diversification,” he said. “We do not see a great utility in holding concentrated positions in gold.” 

Gold a Weak Hedge 

Already hampered by not paying a dividend, gold has also proven to be a weak hedge against spiking inflation. 

Ulin pointed out that from August 2011 through 2018, gold lost nearly 35% before bouncing up through the Covid pandemic and quarantine at the top of 2020. 

“The gold index is still down 4% since the top of 2020 through one of the most vicious rate-hike and inflation cycles in decades and has broken even since mid-2011,” he said. 

Laura Mattia, chief executive officer at Atlas Fiduciary Financial, is not anti-gold, but she’s not a fan of concentrating her exposure to it, either. 

“Gold can have a place in a diversified investment portfolio, but it's worth considering a broader range of commodities that might offer advantages,” she said. Mattia ticked off other commodities to include: metals like silver, copper, aluminum and zinc; agricultural products including sugar, soybeans, corn and wheat; and and energy sources like gasoline, Brent crude oil and natural gas. 

Don’t Concentrate Gold Holdings 

Chuck Failla, founder of Sovereign Financial Group, is also in the camp of gold being part of a diversified allocation to commodities, but not concentrated. 

“As a rule, we don’t allocate specifically to gold; we will allocate to commodities from time to time, but do not feel a need to allocate specially into just one commodity like gold,” he said.  

Vance Barse, founder of Your Dedicated Fiduciary, appreciates the recent appeal of gold and said some of his clients are asking about it. 

“Clients are seeing the headlines about inflation being higher for longer,” he said. “But a lot of our clients already have real estate exposure, so they already have an inflation hedge.” 

Contact Jeff Benjamin at [email protected] and find him on X at @BenJiWriter