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In charts: has gold helped or hindered your portfolio?
UBS Wealth Recommends Buying Gold Near $1,200 for Insurance
Real interest rates seen probably going sideways this year
UBS likes ‘insurance qualities’ of gold at this kind of level
Gold will probably trade in a range of $1,200 to $1,300 an ounce in the short-term as the metal tracks U.S. real interest rates, according to UBS Group AG’s wealth management unit.
“We’re not saying we have a bullish bias; we’re not saying we have a bearish bias,” Wayne Gordon, executive director for commodities and foreign exchange, said in an interview on Tuesday. “We’re saying that tactically, people should be buying it somewhere near $1,200 and selling it again somewhere near $1,300, and it’s because we have a view that real rates go sideways. So the pickup in nominal rates will be equally matched by the pickup in inflation.”
Bullion climbed almost 9 percent in the first quarter, buoyed by worries over Donald Trump’s presidency and geopolitical risks. Prices have since fallen and posted their first monthly decline this year in June. On Monday, the metal fell the most since November as equities and bond yields rallied, before North Korea’s launch of what the U.S. said was an intercontinental ballistic missile sparked a small rebound. The price was at $1,222.05 on Wednesday.
If U.S. unemployment keeps falling, and the Federal Reserve keeps raising interest rates no matter what the inflation data show, that will be negative for gold in the short term, Gordon said. Still, solid demand this year and weaker output, coupled with a lower dollar, are positive for prices, he said. If equity valuations start to drop, investors could turn to gold too, he added.
Gold could also act as insurance if the labor market doesn’t show further improvement in the U.S. and inflation doesn’t pick up, which would make the Fed pause on its tightening path, or if global growth slows, said Gordon. “We like the insurance qualities for gold just from an unknown perspective at these sorts of levels,” Gordon said.
Bullion rose as much as 0.7 percent in two days after North Korea’s rocket launch revived geopolitical concerns. U.S. Secretary of State Rex Tillerson called the act a “new escalation of the threat” and the United Nations Security Council plans a closed session later Wednesday after a U.S. request.
Gold will probably range from $1,150 to $1,350 in the second half, depending on how global equity markets perform, whether Trump can implement his agenda and the strength of the dollar, Robin Tsui, an exchange-traded fund gold specialist with State Street Global Advisors, said in Hong Kong Tuesday.
Investor holdings in the SPDR Gold Trust, the biggest ETF backed by bullion, have shrunk to 846.29 metric tons, the lowest level in almost three months.
Why is gold up 11 per cent this year?
APRIL 21, 2017 by: Lucy Warwick-Ching
What does this show?
On Tuesday morning the gold price spiked at $1,286, ahead of prime minister Theresa May’s call for a snap general election. It then fell back slightly once sterling began to strengthen on the back of the news. The chart shows an 11 per cent rise in the gold price since the start of the year. The precious metal appears to be heading towards levels not seen since the election of US president Donald Trump last November.
Why are investors keen to buy gold now? Geopolitical tensions across the globe have increased dramatically in recent months, following Mr Trump’s recent announcement that he was prepared to take military action in North Korea. Investors are looking to the commodity as a refuge from this global uncertainty. Josh Saul, chief executive of the Pure Gold Company, an investment service, says the popularity of gold can be linked to febrile market sentiment as global tensions intensify over the likes of the US and North Korea. He said: “Over the past few days, confidence in financial markets has been depressed. We’ve had many clients removing exposure to equities as they fear the worst-case scenario between North Korea and the US. “They believe that both leaders are inclined to fight, which adds to the unpredictability of the global political and economic environment, and this lends itself to gold sales as a relatively secure investment or a form of portfolio insurance.”
Beyond the US, gold has had other drivers of demand so far this year. In Europe, investors are looking to protect themselves against the political risk associated with the upcoming French presidential election, where some fear the instability that would follow a shock victory by the far-right leader Marine Le Pen.
In Asia, the gold price is also benefiting from an uptick in jewellery demand in China after declining sales last year. Experts say another catalyst for the rise in gold price has been the US dollar’s fall in value. The commodity is inversely correlated to the currency: when the dollar falls, as it has done in recent months, investors have more buying power and gold demand goes up. Why do investors like holding some gold in their portfolios? Gold typically represents a safe haven for nervous investors.
Demand rose last year after the Brexit vote and Mr Trump’s election. The weaker yuan and low or negative interest rates also made gold more attractive, helping push up investment demand. The precious metal is also seen as a safe hedge against inflation. What are the risks of holding it? Since it provides neither a dividend nor an income, there is an opportunity cost in holding it. However, many investors believe that is worth paying at the moment, when interest rates are low and the price is likely to be rising. What are the forecasts for the gold price? Over the long term, experts predict that the gold price could rise much higher.
The market is expecting Federal Reserve interest rate increases, with up to two US interest rate rises predicted for this year and some expecting as many as four in 2018. Alongside this there are mounting political tensions between the Trump administration, Syria and North Korea.
Copyright The Financial Times Limited 2017. All rights reserved.