How investors should play gold amid inflation and uncertainty

WallachBeth Capital Director of ETF Trading Solutions Mohit Bajaj joins Yahoo Finance Live to discuss how investors should play investing in gold amid economic uncertainty and geopolitical tensions.

Video Transcript


- In times of uncertainty, investors typically turn to gold. And there were certainly some flows to the precious metal this morning. This, as the Fed looks to proceed with another 75-basis point hike and amid the ongoing war in Ukraine. So what's the best way to play it?

WallachBeth Capital's Director of ETF Trading Solutions Mohit Bajaj joins us now. And Mohit, the big question for gold is, why hasn't it performed better? Year-to-date, it is down almost 7%. You could argue that it's done much better than other assets. But really, why hasn't oil gone to the Moon, let's say, for gold bugs?

MOHIT BAJAJ: I think what's happening this year is that historically gold has been an inflation hedge or considered an inflation hedge. But with uncertainty with the central banks, inflation now, what, at 8%, 8 and 1/2% almost. We haven't seen this type of inflation since the 1970s.

People are a little more hesitant in getting into gold. And two, it hasn't performed as well as it historically has, right? Just because we've seen this huge spike in inflation and concerns with interest rates, gold usually performs pretty statically when inflation is-- doesn't move as much or interest rates are more flatline.

But while we've seen this huge spike now with rates and inflation at the same time, which we haven't seen in 40 years, gold hasn't proven to be its historically inflation-proof product that people hoped it would be.

AKIKO FUJITA: I mean, just the safe-haven play that it traditionally has been. You know, we've seen the move today on the back of what's been playing out in Russia. But as you said, it hasn't really tracked with how it's historically been traded. We'll get to how you can actually trade gold. But I wonder, when you talk about prices, how much of what we've seen so far has to do with what's been playing out in China and India?

MOHIT BAJAJ: It's become a huge part of it. So unfortunately, with China, it's-- they're still under COVID restrictions. So what's happening now is that-- usually, China is a big consumer of gold products. So is India. So when China is on lockdown, not many people are actually physically buying the product.

What needs to happen, essentially, in those countries is that there needs to be more open marketness, people need to go out and start shopping. And that hasn't been happening. So that's been kind of creating an excess surplus in the marketplace and why gold prices having been lifted since.

- How much gold do you think that investors should have in their portfolio?

MOHIT BAJAJ: I'm a big proponent of always allocating across the board in all sorts of different asset classes. Anywhere from 5% to 10% should be no more than, you know, significant in one's portfolio. Obviously, you don't want to be overweighted in any asset class or sector, for that matter. But having anywhere from 5% to 10% weighting in your portfolio, I think, would be more than sufficient.

AKIKO FUJITA: So where are you seeing the inflows right now when you talk about ETF products that are market that allow investors to trade in gold?

MOHIT BAJAJ: Well, there's a couple of products that are out there that are all fine products. GLD is one of them. It's-- it was the first ETF in the marketplace to actually track gold. It's about $50 billion in assets. So if you want to get access to gold without having to physically buy the-- buy the metal, you can just buy that ETF.

BAR is another one that we've seen a lot of strong demand in. One of the reasons why it's become so popular is that to become a lower expense [INAUDIBLE] play. And from a price standpoint, that's only like $16 or $17. So for those who are novice investors and just want to kind of set their-- put their foot into the space, they can buy that without having expel as much capital.

- And would you recommend physical gold?

MOHIT BAJAJ: I think it's-- the problem with having physical gold is that if you want to sell it, it's gonna be a little bit tougher, right? It's getting the liquidity, buying it, storing it, and even getting out of it is always problematic. That's why it's much easier to have the ETF where you can basically get liquidity anytime you want to get out.

AKIKO FUJITA: OK, some good investing advice there. Mohit Bajaj, WallachBeth Capital's Director of ETF Trading Solutions, appreciate your time today.