George Milling-Stanley, State Street Global Advisors Head of Gold Strategy, joins Yahoo Finance Live to discuss the outlook for gold futures in relation to equity markets, expected Fed policies, inflation, and cryptocurrency trends.
- Gold hasn't glittered in 2021. The yellow metal is closing in on its worst year of performance in six years, as investors flocked to stocks and crypto. But will gold bring up a bit next year? George Milling-Stanley is State Street's head of gold strategy, and joins us now. George, nice to see you this morning. Thanks for hopping on. Do you expect a rebound in gold next year?
GEORGE MILLING-STANLEY: I-- yes, I think that we're going to see better performance than we've seen in 2021. I think, to put 2021 in perspective, it's important to remember that gold was coming off two banner years. The price went up 18% in 2019. It went up another 24% in 2020.
Both of those figures are way ahead of the long-term average capital appreciation in the gold price, which is around 7 and 3/4 percent. So we were running way ahead of ourselves, for obvious reasons. So something of a slowdown in 2021, I think, was to be expected.
My sense is that, as economies are starting to recover, we're starting to see a rebound in the all-important jewelry consumption, mostly in the emerging markets. And that is absolutely key to the health of the gold price going forward. It's typically more than half of each year consumption. So I think that's going to be one of the kickers for 2022, Brian.
- And George, I was also looking at fund flows in and out of the GLD ETF, which, of course, is the benchmark ETF for gold. And we have seen, if you look at sort of the moving average here, we've seen, on balance, this year some money come out of that GLD ETF. But I'm curious, as you talk to clients, consumers, what have you, how people view gold at this point in their portfolio, and if that view of the role that it plays has changed at all.
GEORGE MILLING-STANLEY: OK, let's address the outflows, first of all, Julie. You brought that up. We've lost about $10 billion to redemptions from GLD in 2021 so far, but that comes after a year in 2020 when we were up $15 billion. So we're still running pretty well, if you take the two years as an average.
As far as where investors see the gold in their portfolios, I think most people are still seeing it-- they still believe that gold is offering them some protection against the unexpected, whether the unexpected is macroeconomic or geopolitical. There's still plenty of potential for the unexpected to keep cropping up. We haven't seen, perhaps, as much in 2021 as we did in the previous couple of years, which was one of the reasons why gold was a little quiet this year, but I'm still expecting to see uncertainties, especially around equity markets.
We've seen equity markets closing the year by hitting new highs almost every day. That's wonderful news, but it's also something that makes me wake up at night, worrying about how much longer that's going to continue. If we're going to see more uncertainty in equity markets and we're going to see continued low interest rates for the foreseeable future, there's no suggestion that the Fed is going to be in a hurry to raise rates. Then I think gold is probably going to do better next year than it has in the years so far.
- George, perhaps you could settle this debate for us. And we have it a lot here. Do you think gold is competing for-- competing with cryptocurrencies for investors?
GEORGE MILLING-STANLEY: Not really. There's a lot of discussion about this in the media, but I'm not hearing it in the real world of investors and the advisors to investors that I spend my time talking to. I think the two things have rather different characteristics, and that means that it's not really a competition.
If you think about it, the contribution that cryptocurrencies make to portfolio performance is based entirely on returns. And as we know, returns can be positive, which is wonderful, and returns can also be negative, which isn't quite so good. And we've seen both of those from all of the cryptocurrencies in the short term they've been in existence.
By contrast to that, gold's promise to investors historically has always been twofold. What we expect from gold is that it will, over time, it will improve returns, and that, over time, it will reduce risk, reduce volatility in the overall portfolio. Cryptos, in the 13 years they've been around, have actually increased volatility. Their volatility has been eight or nine times more than gold over that short sample time frame. It's all we've got, so that's what we have to judge on. So they've been adding to volatility. They have added to returns, but they've really only done a one-dimensional job.
I think that-- you know, I think that cryptos have a future, there's no question, and that when their returns are good, then people, I think, will continue to buy them. But I don't think people are switching out of one asset and into the other. I think that, if you like, they're complementary, rather than in competition to one another.
- Right. As you say, it depends on what people-- what the motivation is, what they're holding them for. One of the motivations, traditionally, for people to hold gold is as an inflation hedge. And obviously, we have seen inflation here in the US and around the globe tick up pretty significantly this year, even if it hasn't benefited gold, though, to your point, over the two years, it looks different. So what happens next year, as inflation is still predicted to increase, albeit perhaps at a lower rate? Will that be one of the things that draws people back to gold, perhaps?
GEORGE MILLING-STANLEY: I think it might. I think that, you know, inflation is always-- it has an autumn impact on the gold market. If inflation seems to be going up, then people naturally turn to an asset like gold that has some real value and that has, in the past, offered some protection against sustained high inflation. But we've only had high inflation for, what, five or six months. That is not, frankly, long enough, in my time frame, to call that sustained. I would look for at least 12 months, or even longer.
Now, if we continue to see inflation figures around the 5% or 6% per year that we've been looking at for the past few months, especially now that those in authority have decided that it is no longer right to call that transitory, so they're looking for more longer-term inflation, then I think that gold is going to benefit from that. But there is always the fear that investors have that, if inflation is too high or rising too fast, either one or both together, then the Fed is likely to move rapidly.