Banks and pundits are singing gold’s praises as it leaps in 2016.
The chart below from The Economist says gold GCJ6, -1.29% has gotten off to its best start to a year in 35 years. The safety play is up 15% in the year to date as of Friday, helped by haven demand amid dives by stocks, crude oil and other assets.
The Economist Bank of America Merrill Lynch’s latest “Flow Show” note deploys phrases like “gold rush” and “gold is the new black.”
Precious metal funds have seen their biggest three-week inflow of investor money since June 2009, says the note dated Thursday. The chart below, illustrating the rush into such funds, comes from the BAML note.
BAML The inflows have coincided with the Federal Reserve “talking down” the U.S. dollarDXY, +0.66% and with rising fears that a recession is nigh and quantitative easing is failing, says the BAML note, which was penned by the bank’s global investment strategists, led by Michael Hartnett. A strong buck often acts as a drag on dollar-denominated commodities by making them pricier for holders of other currencies.
Citi’s global asset allocation team has upgraded gold GLD, -0.69% to overweight, saying in a note dated Thursday that they “have gone even longer” precious metals.
“To balance the portfolio, cash goes to underweight — in a negative rate world gold may replace cash in portfolios,” says the note by Citi’s Jeremy Hale, Graham Bishop and others. Deutsche Bank also has argued that it’s time to buy gold, as CNBC notes.
Not every bank has turned into a gold bug, of course. Gold, after all, has lost ground for three straight years. The metal — which was down roughly 1% Friday — remains well below levels reached in 2011, as the previously mentioned chart from The Economist shows.
Socit Gnrale sounded a bit skeptical in a note dated Friday. “In the medium term, we maintain our bearish bias on gold: we expect the downtrend to resume once the demand for safe assets fades,” says the note by SocGen’s Alain Bokobza and others on the bank’s global asset allocation team.
But we’ll give the last word to John Browne, who has written a somewhat hair-raising post over at RealClearMarkets that suggests stockpiling gold and cash. Browne is a senior economic consultant to Euro Pacific Capital, which is gold bug Peter Schiff’s company.
“The size and scope of the political, economic and financial problems that now challenge the relative stability and tranquility of developed societies are unprecedented,” Browne writes in his post dated Thursday.
“Should the war on cash prove unsuccessful in its early stages, banks could be closed for long periods. Investors should be aware of such possibilities and consider whether to hold cash and precious metals prudently outside the banking system.”
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