As stock markets rebound from the coronavirus-led depression, global investor advisers urge them to hold more gold. This is because they are questioning the strength of the recovery and the long-term impact of global central bank cash. Reuters has surveyed gold and the future of the commodity among nine global banks, and the answers coincide in valuing the yellow metal at a high level.
Before the Covid-19 pandemic, most private banks advised their clients to have nothing or only a small amount of gold in their portfolios. Some entities are now channeling up to 10% of their clients’ portfolios to the yellow metal. The massive stimulus from the central bank reduces bond yields, making non-performing gold more attractive. It also increases inflation risk that would devalue other assets and currencies.
The yellow metal prices have already risen 14% from the beginning of the year to $1,730 an ounce. However, many private bankers bet that gold, a hedge for both inflation and deflation, has yet to devalue.
Banks advise clients to increase their allocation to gold
Lisa Shalett, Head of Wealth Management Investments at Morgan Stanley, stated that with the weight of the money supply, the expansion will ultimately degrade with the dollar. It could make the metal quite substantial.
Morgan Stanley added a 5% position to commodities, including gold, on all its models in late March. While the bank is unlikely to advise an area above 10% in products such as gold, Shalett said it could get there, especially if inflation materially recovers.
Reuters spoke to nine private banks that advised clients to increase their allocation to the precious metal.
UBS stated that gold could hit $1,800 an ounce by the end of the year fueled by ultra-low interest rates. The metal could hit a record high of $2,000 in the event of a second wave of new coronavirus infections.
With the recent rebound in equity, people became more nervous. They are actively looking for portfolio hedges that can work well in various scenarios, said Kiran Ganesh from UBS.
The increased demand could be a self-fulfilling prophecy of the metal’s price. Any change in the bond and stock markets’ allocation has a much more significant impact on the gold market.
Bankers said that, while gold inquiries have increased, very few clients demanded a wholesale move to the metal. Older clients tended to be more concerned about the risks of inflation, it seems.
Although having gold does not generate income, said Oliver Gregson, Head of Private Bank UK & Ireland at JPMorgan, the consultations had increased. Clients increasingly saw gold as a haven in a storm as of now. He forecasts a year-end target price of $1,750 an ounce.
For those looking to change their bets to gold, four options are available: the metal mining companies, index funds, derivatives such as options and futures, and gold itself.
Most of the largest banks offer a gold bullion storage service, and eight of them said they saw an increase in demand, particularly in places like Switzerland and Singapore.
- Trading Instrument