Displaying items by tag: gold

(New York)

Gold has been doing well this year alongside all the market turmoil and uncertainty. While one could construe recent progress on a trade deal with China as potentially bad for gold—given its status as an uncertainty hedge—the reality is that rates are headed lower via Fed cuts. This means the Dollar will weaken, and in turn help gold. Societe Generale, for instance, is advising a maximum allocation to gold, saying investors should have 5% of their portfolios in it. Additionally, a resolution to the trade war would probably also weaken the Dollar as there would be less desire to take advantage of its safe haven status.

FINSUM: Basically Soc Gen is arguing that gold will benefit from both lower rates and a risk-on trade. The former aspect seems sound, but gold benefitting from less anxiety? Sounds a weak supposition to us.

(New York)

One of the biggest banks on Wall Street has just made a bold call on gold. Citi says that the precious metal is likely to shoot to $2,000 or more within the next 24 months. The bank argues that a dovish cutting cycle by the Fed will be a catalyst for price gains, which will be supported by a weakening economy and worries over the trade war. According to Citi, “We expect spot gold prices to trade stronger for longer . . . posting new cyclical highs at some point in the next year or two”. Standard Chartered, another big bank, also made the interesting comment that “It does seem that gold’s status within the portfolio has been reignited”.

FINSUM: The most interesting comment here is about gold’s role in a portfolio. For many years it seemed that investors had forgotten about gold’s role in diversification, but it finally seems to have made a comeback.

(New York)

A big bank has just come out very bullish on gold. BNP Paribas says gold is going to shoot to over $1,600 per ounce in the medium-term as the Fed embarks on four 25 bp interest rate cuts between now and June 2020. According to BNP Paribas, as headline yields fall with each cut “real rates will move and stay in negative territory, raising the appeal of holding gold”. The ongoing, and seemingly endless trade war, will also be bullish to gold.

FINSUM: This argument makes perfect sense to us, though it is highly contingent upon the Fed cutting and the trade war continuing. In our view, both of these are likely, so this appears like a good buy.

(New York)

Rates are looking likely to head sharply lower, and the inversion does not seem likely to abate. Since the Fed’s 25 bp cut a few weeks ago, markets and the economy’s outlook have moved sharply lower. This will likely lead to several cuts over the next year. According, what is the best way to play this big change? Two asset classes that fit the bill are gold and dividend stocks/funds. Gold thrives when there are worries about the economy and when rates are falling, so this is a perfect environment for the metal. Throw in the fact that it has been in a bear market for years and you also have valuation on your side. Dividend stocks look likely to do well because they tend to rise as rates fall. Additionally, the sharp drop in long-term yields means a 2% yielding stock looks incredibly more attractive than it did a year ago.

FINSUM: Gold seems to have a lot of momentum and valuation is on its side, but dividend funds seem like a really good bet to us.

(New York)

Societe Generale, famed European investment bank, has just told investors they should load up on gold. Gold is seeing several value drivers at the moment. These include the economic cycle and fears over the trade war, a lack of other safe haven assets, and importantly (and much less known), central bank purchases. Global central banks (like China’s) are trying to diverse away from the Dollar, and gold is an attractive way for them to do so.

FINSUM: There are a lot of tailwinds for the yellow metal right now. The Fed is less dovish than most expected and there does not seem to be much risk of a huge risk-on shift that would leave gold forgotten.