Gold: Percolating market and policy risks point to weightier allocations - TDS

According to analysts at TD Securities, the US Fed's recent tilt toward a well-defined dovish monetary policy stance, which pulled rates lower across the yield curve, along with a spike in growth uncertainty and equity market volatility, managed to boost gold prices into a significantly higher trading range with a high just under $1,350 in the early part of 2019, but has since been trading in a narrow band on either side of $1,300/oz.

Key Quotes

“Many in the market are dismayed and ponder what it will take to move gold past $1,350/oz in a meaningful way, if a dovish Fed can't do the job.”

“There is growing evidence that central banks are tilting their asset reserve mix into bullion and away from the USD. And considering the convictions that central bankers around the world may again need to follow a nonconventional monetary policy path when the economy heads south, is additional fodder for the view that private asset allocations would follow the official sector in increasing the weighting of hedge assets like gold in their portfolios as well.”

“The metal has in the past proved to be a highly effective portfolio diversifier that helps reduce volatility, when added to a portfolio of stocks, bonds and USD denominated assets. Money manager positioning data supports this hypothesis.”

“Considering the balance of risks for equity markets should tilt towards a correction and away from another substantial bull run and that the USD is poised to weaken longer term, there will likely be a motivation to increase gold's relative weighting in money manager allocations.”