“We are the largest gold-backed ETF provider in the world,” said Robin Tsui, APAC gold strategist and vice-president at State Street Investment Management at The Inside Network’s recent Alternatives Symposium. “And we’ve been telling clients for the last five years, you’ve got to look at gold as a single asset class.”
Tsui’s remarks come at a time when gold is trading at historically high levels. “When we published our mid-year outlook in June, the gold price was around US$3,200 an ounce,” he said. “We still believed it would remain in a higher-for-longer price regime. At US$3,650 now, I think it’s safe to say we were correct.”
Behind that performance are a series of structural forces reshaping demand. “Gold is no longer just a commodity sitting inside a broad-based basket,” Tsui argued. “Its behaviour, correlations and performance have decoupled from that framework. It’s a strategic asset in its own right.”
The first and most visible driver has been flows into exchange-traded products. “We track 160 gold-backed ETFs globally,” he said. “What we’ve seen is a return of strong inflows, particularly since the first half of this year.” As of August, investors had added 550 tonnes to ETFs. “That’s the third-highest inflow year on record, just behind Covid and the GFC,” he noted.
These inflows, Tsui said, are not just tactical. “Across institutional, retail and financial advisers, the sentiment is very strong,” he said. “The inflows are tightening supply, and ETFs are fully backed by physical gold. That dynamic is very supportive of price.”
The second key driver is physical demand, especially in Asia. “We’ve studied the behaviour of retail gold buyers, and there’s been no significant slowdown in demand despite the price doubling since Covid,” Tsui said. “Bars and coins are long-term holdings. In Asia, they’re strategic assets.”
He was particularly struck by the generational shift underway. “The younger generation in China, Hong Kong and Japan have become increasingly interested in gold,” he said. “Five years ago you’d have laughed if I’d said that. But now, they see it as a way to diversify when equities are underperforming and currencies are depreciating.”
Central banks represent the third and perhaps most powerful tailwind. “They’ve been buying at a historic pace,” Tsui said. “Over the last three years, central banks have purchased around 1,000 tonnes per year. That’s about one-third of total mine supply.”
This trend, he said, is driven by geopolitics and reserve rebalancing. “The sanctions from the US have pushed countries like China, India, Poland and Turkey to diversify away from the dollar,” Tsui said. “They are rotating into gold to reduce exposure.”
“China’s gold reserves have gone from 2 per cent of total reserves to 6 per cent in just three years,” he noted. “If they target 20 per cent, which is the global central bank average, it could take another eight years of consistent buying. That’s a powerful source of demand.”
A fourth force supporting the price is de-dollarisation, linked to the global debt build-up. “We’ve spoken with at least five Asian central banks this year,” said Tsui. “They’re concerned about holding US assets and have been asking us how to get exposure to gold-backed ETFs. That’s new. Historically, they only bought physical gold.”
The direction of monetary policy adds yet another tailwind. “We expected three rate cuts this year when many were only pricing-in one,” he said. “Rate cuts have historically been very beneficial for gold. Over the last 55 years, every time the Fed cuts rates, gold goes up.”
There is also a growing dislocation between gold and traditional safe havens. “Historically, gold and US Treasuries were positively correlated,” Tsui explained. “That’s broken down. The correlation is now deeply negative. Gold is outperforming both the dollar and Treasuries as a safe haven.”
For clients concerned about systemic risk, Tsui believes gold offers something governments cannot. “Gold has moved up in the safe-haven hierarchy,” he said. “Clients are increasingly bearish on the dollar and concerned about the independence of the Fed. Gold’s appeal is precisely that it’s not tied to any government.”
Looking ahead, the outlook remains strong. “We’re confident gold will close in on US$3,900 by year-end,” he said (at time of publication, it has pushed through US$4,000 an ounce). “Q4 has strong seasonal support from Indian and Chinese demand, and portfolio rebalancing also plays a role.”
From a portfolio construction perspective, Tsui sees gold as a risk-adjusted-return enhancer. “We’ve back-tested gold allocations of zero to ten percent,” he said. “The results are clear. Gold increases risk-adjusted return, reduces maximum drawdown, and this year, you’ve had the bonus of a 40 per cent return.”