Gold prices have been breaking new records. Photo / 123rf
Renewed fighting in the Middle East and deepening doubts about United States President Donald Trump’s tariff-based economic policy have been driving gold prices to record highs.
At last glance, gold hit US$3050 ($5265) a troy ounce - a more than 10-fold increase since the turn of the century.
But gold – not always the most favoured asset class – has had its fair share of time in the doldrums.
Craigs Investment Partners investment director Mark Lister says gold has its place in investment portfolios.
“I don’t like it on its own, but I like it as a part of a portfolio,” he says.
“It’s a good insurance policy, and what you find is that if you add a gold allocation of 5 or 10% to your portfolio, it reduces your volatility without reducing your returns.
“It’s a really good diversifier but it can be volatile.”
Read More: Inside Economics: Why gold prices are soaring
Lister says that if you look back through the past 20 or 30 years, you’ll find some periods where gold has been ”pretty awful" as an investment.
“When it goes through one of those periods where it doesn’t deliver, or is going down, it gets pooh-poohed.
“Right now it’s going very well and everyone’s happy to have some gold in their portfolio, but it can be a very volatile commodity at the end of the day, driven by risk sentiment.
“The times when it tends to be going well tend to be the times when everything else is a little bit shaky, like at the moment.”
Over the very long term, Lister says gold has probably performed better than cash and bonds, but not as well as equities.
“It tends to zig when other assets zag, which is what makes it such a great part of a portfolio from a diversification perspective.”
Over the past 30 years, Lister estimates investment in US stocks has given an overall return of 2034%, New Zealand stocks 1124%, New Zealand bonds 383% and gold 658%.
Meanwhile, turmoil on world share markets continued this week.
The US Federal Reserve kept its rate unchanged but slashed its growth forecast and lifted its inflation outlook, reflecting concerns about the likely impact of tariffs on the world’s biggest economy.
Fed officials now expect US GDP to expand by just 1.7% this year, with prices forecast to rise by 2.7% .
The Fed is in good company.
Fitch Ratings said the US administration had started a global trade war that would reduce US and world growth.
The agency has cut both its 2025 growth forecast to 1.7% from the 2.1% in its December outlook, and its 2026 forecast to 1.5% from 1.7%.
“These rates are well below trend and down from almost 3% annual growth in 2023 and 2024,” Fitch said.
China’s National People’s Congress last week resulted in a shift towards lifting domestic activity through a raft of stimulus packages.
Much of it looked to be aimed at a 30-point plan to lift consumption, coupled with more incentives to lift the birth rate.
Some of these policies are likely to take time to roll out with some cities and regions introducing cash subsidies to support family formation.
Hohhot, the capital of Inner Mongolia, has announced a new fertility subsidy including a one-time payment of RMB10,000 ($2380) for families with their first child.
Families with a second child will receive RMB10,000 annually until the child reaches 5 years old, totalling RMB50,000.
For the third child or more, the annual subsidy will be RMB10,000 until the child turns 10 years old, with the total amount reaching RMB100,000.
“If these subsidies work and are rolled out across China, it could drive demand for New Zealand-produced infant milk formula over the next few years,” Harbour Asset Management portfolio manager Shane Solly said.
Infant formula company a2 Milk’s shares rallied sharply on the China stimulus package, but trade in the stock has been volatile.
The dual-listed company, with a price earnings ratio of 38.9 times, is already one of the market’s pricier stocks.
It’s always a bit murky, but it appears that a2 was at first under pressure over fears that it would be removed from the FTSE Global Index, based on a lack of liquidity in the trading of its shares in New Zealand.
However, the talk was that a2 Milk did meet the criteria if it was classed as an Australian stock, given 62% of the stock is registered in Aussie and 87% of the volume is traded there, thereby enabling it to remain in the influential index.
As a2 Milk continues to gain, some brokers are adjusting their recommendations.
Australia’s Barrenjoey this week changed its a2 Milk recommendation to “buy” from “hold”.
“I still like the business but the share price has run a bit hard,” Solly said.
He said the winner among the NZX dairy stocks continues to be Fonterra.
“This has been one of the best-performing stocks on the NZX over the last 12 months,” he said.
“That’s been about the business getting back to focusing on what actually shifts the dial.”
Of the S&P/NZX50 constituent stocks, Fonterra (up 79%) ranks as having the third best performance, and a2 Milk (52%) the fifth on a 12-month basis.
The co-op yesterday reported an 8% lift in first-half net profit to $729 million, increased its interim dividend and narrowed its milk price forecast for this season.
Trump has long been a critic of the Biden administration’s Chips Act (which has benefitted Rocket Lab) and the clean energy subsidy-focused Inflation Reduction Act.
So it was no surprise when he froze yet-to-be-allocated funding for both soon after his return to the White House.
But more recently, Trump’s comments have raised fears he will try to claw back funding that’s already been allocated - including some US$20 billion ($34.5b) in grants given under what he calls the “green scam” IRA and related programmes, according to a Wall Street Journal report earlier this week.
During his State of the Union speech to Congress, the president veered off script to address the Chips Act, calling the law a “horrible, horrible thing”. He said to Speaker Mike Johnson: “You should get rid of the Chips Act”.
Infratil warned earlier this year a changing of the guard in the White House could impact Longroad Energy, the Boston-based solar and wind farm operator in which it has a 37.3% stake.
Asked earlier this month about the impact of Trump’s apparent clawback push, Mark Flesher, investment relations manager for Infratil manager Morrison told the Herald: “It’s hard to differentiate between what are headlines and what is real.
“The Longroad team are clearly following things closely. They continue to sign new power contracts and believe the power demand story is still favourable for renewable development.”
Flesher added, “What ultimately gets adjusted or cut from the IRA is likely to take six to nine months to clarify“.
In the meantime the Longroad team has safe harboured the majority of the 2025/26 development.
The company hasn’t quantified its exposure in dollar terms, but Infratil said in an investor presentation that Longroad had “modest exposure” for some FY2025 and FY2026 projects totalling two gigawatts of capacity, while two FY2025 projects (0.7GW and 0.5GW) were already “safe-harboured” with tax credits under the IRA.
Rocket Lab said in June last year that it had been granted US$23.9m under the Chips Act to double production of solar panels for satellites at its New Mexico plant. New Mexico’s state Government chipped in a further US$25.5m for the expansion, which it said would create 100 high-paying jobs.
In November, Rocket Lab said the funds had been “finalised”.
The Chips Act was passed with bipartisan support.
Trump told podcaster Joe Rogan that tariffs were a better vehicle than the legislation for boosting local semiconductor production.
Not all firms are losing subsidies.
The Financial Times reports that Trump’s Commerce Secretary Howard Lutnick has ordered civil servants to spend more of a US$142b rural broadband subsidy programme with Starlink, the satellite broadband provider owned by Elon Musk’s SpaceX.
The Wall Street Journal said Starlink had been due to receive about US$4.1b under the Biden-era scheme.
It could now be in line to receive US$10b to US$20b. Rocket Lab had no comment.
As of Thursday morning, Infratil shares are down 14.6% year-to-date. Rocket Lab was trading down 24.8% year-to-date. Both stocks have given back some of their record gains in 2024 after being caught in the early 2025 tech down-draft.
– Additional reporting Chris Keall
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
Focus has turned to those companies who will benefit from this week's RBNZ rate cut.