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NEWS

The only way

is up

for gold

Gold will continue to be in the spotlight this year
by Reuters

s stock markets roar back from the coronavirus-led rout, markets, estimated at up to a combined $US200 trillion, has
Aadvisers to the world’s wealthy are urging them to hold a much larger impact on the smaller gold market, estimated at
more gold, questioning the strength of the rally and the long- less than $US5 trillion.
term impact of global central banks’ cash splurge. While queries about gold have increased, very few clients had
Before the COVID-19 pandemic, most private banks demanded a wholesale move into gold – something they would
recommended their clients hold none or just a tiny amount of have been advised against – the bankers said, adding older
gold. clients tended to be the most concerned about inflation risks.
Now some are channelling up to 10% of their clients’ portfolios “That cohort is very concerned about wealth preservation. And
into the yellow metal as the massive central bank stimulus in many ways they have a longer historic lens than some of
reduces bond yields – making non-yielding gold more attractive our other clients, so they do worry about inflation,” Shalett said.
– and raises the risk of inflation that would devalue other assets John LaForge, head of real asset strategy at Wells Fargo
and currencies. Investment Institute, said from two calls a week on gold last
While gold prices have already risen 14% since the start of the year, he is now at two calls a day, spiking to 10 calls when the
year to $US1,771/oz, many private bankers bet that gold – a metal has a good day.
hedge for both inflation and deflation – has further to run. “I’m now getting as many questions on gold as I do on oil, which
“Our view is that the weight of monetary supply, expansion, says a lot from my perspective. Most people are interested in
is going to ultimately be debasing to the dollar, and the Fed renewables and oil and so on, and gold was often considered
commitments, which [are] anchoring real rates, make the case a relic,” Forge said.
for gold pretty sturdy,” Lisa Shalett, chief investment officer, Despite the fact that holding gold pays no income, Oliver
wealth management at Morgan Stanley said. Gregson, head of the United Kingdom and Ireland at JPMorgan
Nine private banks spoken to by Reuters, which collectively Private Bank said inquiries had gone up as clients increasingly
oversee around $US6 trillion in assets for the world’s ultra-rich, viewed it as “a port in a storm”. He forecast a $US1,750/oz
said they had advised clients to increase their allocation to gold. year-end price target.
Of them, four provided forecasts and all saw prices ending the For those looking to hedge their bets with a shift to gold, the
year higher than they are now. choices can be split into four: gold mining companies, index
UBS, the world’s biggest wealth manager, said gold could hit funds which represent shares in real gold or track the price of
$US1,800/oz by year-end in its base-case scenario, driven by gold, derivatives such as options and futures, and gold itself, in
ultra-low interest rates and investors seeking gold to hedge the form of bars or coins.
their portfolios, or even touch a record high of $US2,000/oz in For hedging purposes, the first three are fine. If worries run
the event of a second wave of novel coronavirus infections. deeper, investors normally opt for physical.
“With the recent equity rally, people have become more Most of the larger banks offer a gold bar storage service and
nervous. People are actively seeking out portfolio hedges that eight of those questioned by Reuters said they had seen an
might perform well in a range of scenarios,” Kiran Ganesh from uptick in demand, particularly in locations such as Switzerland
UBS’s chief investment office said. and Singapore.
Morgan Stanley added a 5% position to commodities including Andre Portelli, co-head of investments at Barclays Private
gold in all its models at the end of March. Bank, said while some clients had begun adding physical gold
While the bank was unlikely to advise a position above 10% in in early 2020 as COVID-19 spread, the trend had continued.
commodities like gold, Shalett said it could get there, especially “A supply disruption of physical gold in March and April due
if inflation picks up materially. to the closure of major gold bar manufacturers and lack of
The boost in demand could be a self-fulfilling prophecy for the international shipping capacity fuelled also additional client
metal’s price, as any shift in allocation from bond and equity interest.”

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