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Millennials, specifically individuals born between 1981 and 1996, appear to exhibit greater financial caution compared to older generations. According to a report by State Street Global Advisors, those aged 27 to 42 are increasingly favouring gold as the most secure investment for their future. State Street Global Advisors, ranking as the fourth-largest asset management fund globally, oversees an impressive portfolio valued at $4.14 trillion.
This analysis will delve into their performance relative to other age groups and explore the reasons behind young adults’ preference for gold as a stable investment in the current economic landscape.
How Much Do Millennials Rely on Gold?
The report reveals that one in five U.S. investors includes gold in their investment portfolio, with an average allocation of 14% to this precious metal. This finding aligns with other recent research. In an article published at the end of May, I noted the growing popularity of investment gold among the U.S. populace, surpassing both stocks and mutual funds in preference.
Moreover, millennials demonstrate a stronger affinity for gold compared to older generations, with gold constituting an average of 17% of their personal investment portfolios. In contrast, Generation X (those born between 1961 and 1980) and Baby Boomers (those born between 1946 and 1970) allocate about 10% of their investment portfolios to gold.
Why Do Millennials Trust Gold?
George Milling-Stanley, the Chief Gold Strategist at State Street Global Advisors, shared his insights in an interview with Kitco, drawing on his extensive half-century experience with the precious metal:
I have followed the precious metal for half a century and the annual increase in the price of gold during a recession is 20%
However, gold’s strong performance isn’t limited to periods of high uncertainty where it excels ‘very well’; it also holds up ‘well’ during times of financial stability.
This underscores that gold is an adaptable investment option, not only during economic downturns or periods of soaring inflation but also in times of economic expansion. But this resilience and reliability are not the sole reasons millennials, and Americans at large, place their trust in gold. The survey highlights several other factors contributing to this trust.
Disappointing Investments in the Past
Another factor driving millennials towards gold is their significant exposure to the cryptocurrency market’s volatility, impacting price movements.
It’s noteworthy that in 2022, the crypto market experienced a dramatic loss, plummeting 66% in value within a matter of weeks
Despite this, since the start of the year, Bitcoin’s market price value has surged by 76%. While such returns may seem appealing, the cryptocurrency market is notorious for its frequent and severe price swings. This volatility is a major drawback of cryptocurrencies, as they struggle to maintain their value over the long term.
The increasing appeal of gold as an investment can also be attributed to the collapse of FTX and the regulatory actions taken by the U.S. Congress and other countries worldwide towards cryptocurrency exchanges. Notable examples include China, which outlawed cryptocurrency trading in 2021, and other nations such as Japan, Canada, the United Kingdom, Australia, India, among others, moving towards regulation.
Saving in Gold is Easier
Gold, as an asset class, stands out as one of the most accessible assets for individuals looking to safeguard their wealth in the short term and long term. It doesn’t require the intricate knowledge necessary for navigating other financial instruments like bonds, stocks, futures, and options.
Investors have two primary ways to invest in gold: physically, by purchasing investment-grade gold from dealers such as Tavex, or digitally, through various online platforms. According to a report from State Street Global Advisors, 47% of gold investors opt for exchange-traded funds (ETFs), such as GLD or GLDM, as their investment vehicle.
GLD, the largest gold exchange-traded fund globally, is popular among millennials who trade its shares, each representing 1/10 of a troy ounce and valued at $180.45 at the time of this writing.
Since the launch of the ETF SPDR Gold MiniShares (GLDM) in 2018, individual investors have the option to invest in fractional gold shares, with entry points as low as $40, making gold investment more accessible to a broader audience.
Gold, Inflation and Financial Instability
Within the current landscape of the global financial system, inflation remains a pressing issue, debt levels are escalating, and the rise in interest rates is making credit more costly. Additionally, the onset of a banking crisis in the United States earlier this year, alongside various geopolitical events, further complicates the situation.
According to the study, this succession of challenging financial conditions is driving individuals towards gold as a more stable investment option.
Gold has consistently demonstrated its reliability as a secure investment amidst uncertainty in the financial market. During periods of financial, geopolitical, or natural crises, the precious metal typically outperforms other commonly favoured assets, yielding higher returns than other assets on the stock market.
Presently, it’s not just Americans seeking refuge in gold such as gold coins, gold bars, and gold etfs. Central banks worldwide purchased record quantities of gold in 2022, as reported by the World Gold Council. This supply and demand dynamic may influence the price of gold and the amount of gold purchased by individuals and financial institutions.