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Market Insight: Protecting your wealth with precious metals

By Campden Wealth

14 August, 2017

A diversified investment portfolio for a family office often includes alternative investments such as precious metals. Having a portion of your wealth in precious metals is not only viewed by many as an appealing long-term investment, but also as a hedge against other assets in their portfolio.

The level of concern around the current global political and economic climate remains stubbornly high according to a recent online poll conducted by CampdenFB in association with New Zealand Vault. Should we be worried? The snap poll asked CampdenFB members and readers about geopolitical trends, its effect on alternative investment allocations, and bullion as an asset class but how the current climate actually impacts readers investment portfolio remains to be seen. Despite this ongoing uncertainty, New Zealand Vault chief executive John Mulvey, says now is a good time to assess your family's portfolio and ensure it includes 'safe haven' investments like precious metals.

John, what can you tell us about the results from the recent online poll?

John: There were a few trends that stood out – firstly, over 83% of respondents were either moderately, very, or extremely, concerned about the current global political and economic climate and the impact that it may have on their investment portfolio. When digging a little deeper, the most concerning factors were the levels of sovereign debt and deficit spending in the US, Europe, and Japan, together with asset bubbles in real estate and stock markets. Sitting closely behind those concerns, was the liquidity of the global banking system and the ability for it to withstand major shocks, and the instability of Europe and the impact of Brexit.

History tell us in times of uncertainty and instability, many investors more towards commodity-based investments, like precious metals, that historically perform well in times of geopolitical and economic instability, or in times of an economic crisis. From my experience, not only do those asset classes tend to perform well in times of crisis, they tend to act in the opposite manner to other asset classes such as stocks or property, making precious metals an ideal hedge against other assets in a portfolio. The current levels of concern around the political and economic climate makes now a good time to ensure that your portfolio is diversified adequately so adverse effects outside your control are minimised.

The online poll results showed that the top three reasons for respondents that intend to increase their bullion holdings over the next twelve months were: to increase their hedge against the risk of inflation and currency debasement; increase their hedge against various asset bubbles; and to increase their hedge against various geopolitical risks. For those that currently hold bullion, just under 60% of the respondents hold up to 2% of their portfolio in physical precious metals.

And how does the current climate reflect in your customers recent behaviours?

John: At New Zealand Vault many of our clients today treat gold as a hedge against other investments, particularly in uncertain times, like what we see today. Some may argue that as a pure investment, holding physical precious metals does not earn an immediate return on the capital invested. However, what it does do is help minimise the effects of an economic crisis, or other major global events, that may impact investments in other classes. We are seeing many of our customers treating the purchase of precious metals like a type of insurance – they are buying it to protect their investment portfolio against potential losses in other classes. And we are seeing an increase in this type of behaviour from not only our US based clients, but also European clients.

New Zealand Vault has customers from all corners of the globe, what are you seeing as the main drivers for your offshore customers choosing to store in New Zealand – a country many would view as a rather geographically-remote country?

John: Interestingly it is exactly that – its remote location and isolation - that is becoming an increasingly appealing reason for storing bullion in New Zealand. Investors want to know their precious metals are secure, and New Zealand as an island nation at the bottom of the South Pacific is a long way away from any of the worlds 'hot spots'. It was that exact reason that we recently had a North American client purchase and store with us US$8 million in 1kg Perth Mint gold bars.

Many of our customers love New Zealand for its outdoors and natural beauty and tend to visit while on holiday here, but they do not actually need to come to New Zealand to buy and store their bullion with us.

How do offshore clients buy bullion and store it with New Zealand Vault?

John: Our end-to-end process is all managed online, clients can purchase a variety of gold, silver or platinum bars and coins through our online trading platform www.nzvaultbullion.com; and set up their storage account online through www.nzvault.com. The bullion is fully allocated and segregated, and our clients retain complete control of access to the bullion held with us through an independent auditor (international accountancy firm Grant Thornton) who acts on their behalf in New Zealand.

We can also manage the liquidation process of clients' bullion should they wish to sell. We have established a really simple solution for our offshore clients. As word spreads, we are finding our clients are not only buying and storing with us, but also many clients are requesting that we arrange for the transportation of some of their existing holdings to our bullion depository to provide them with geographic spread.

That's an interesting point, tell us more about the desire for geographic spread?

John: There are vaults in the USA, Europe, and parts of Asia that all offer state-of-the-art bullion depository facilities, but what sets New Zealand Vault apart is a combination of political and economic factors that makes us appealing to our offshore clients. We have talked about the fact we are remote, with no neighbouring countries of concern. But also New Zealand determines its foreign policy and is proudly independent of major powers or influencers. We are a country with a very strong economy, very sound banking systems, politically stable, and is regularly ranked one of the least corrupt countries in the world.

New Zealand Vault is a privately-owned business with no connections to any offshore governments or banks, and we are not a financial institution. This is an appealing feature of our service – not only is the clients' bullion held in a very safe and secure facility, it is held in a depository that does not carry the same risk as a bank depository that could be affected by an economic crisis.

Our clients see all of these factors as very appealing attributes, and just like importance of having a spread of different investment classes within your portfolio, there is an increasing demand for geographic spread within those asset classes. Many of our clients hold bullion in several locations around the world, and they want to store in a 'safe haven' country that is not influenced by the government of their home country.

New Zealand as a country, and New Zealand Vault as a bullion depository, ticks all of the boxes for many.