It is time for investors to increase their gold holdings as market volatility increases, DBS Bank Taiwan (星展銀行) said on Wednesday.
Investors should invest more in gold from this quarter onward, DBS vice president of consumer banking Chen Yu-chia (陳昱嘉) told a news conference in Taipei.
The Singapore-based bank held a neutral stance toward gold over the past 12 months.
Photo: Lee Ching-hui, Taipei Times
“For those investors who are especially conservative and cautious, we do not advise them to hold gold, as fixed-income bonds are safer choices, but for those who aim for solid returns, our suggestion is to have at least 5 percent of their portfolio in gold,” Chen said.
Gold has become a favored investment this year as the global economy has grown at a slower pace and stepped into the last phase before a recession, Chen said.
In addition, there are political uncertainties over Brexit, US-China trade and emerging markets, he said.
Unlike other financial instruments, gold does not generate interest, but it is a hedge against market volatility, Chen said.
The precious metal proved its defensive strength in the previous three financial crises: the dotcom bubble in 2001, the subprime mortgage crisis in 2008 and the European debt crisis in 2011, he said.
Moreover, gold performed better than global equity markets during the 2008 global financial crisis, he said, adding that gold prices rose 10 percent from June 2007 to October 2008, while global equities fell 41 percent over the period.
DBS said it did not recommend gold last year, despite political uncertainties, because the US dollar turned stronger on the back of the US Federal Reserve’s four rate hikes, which made the greenback more attractive for investors.
However, as the Fed left benchmark interest rates unchanged last month and hinted that there would be no rate hikes for the rest of the year, the expectation of a stronger US dollar has eased and now it is the time to embrace gold, Chen told the Taipei Times.
However, gold prices are not expected to advance sharply this year, as market demand would not be overly high, Chen said, adding that he expects prices to hover between US$1,250 and US$1,350 per ounce for the rest of the year.
They could rally to US$1,400 per ounce if market volatility continues to increase, he said.
Prices have risen 5.95 percent over the past six months, reaching US$1290.6 per ounce on Friday, still much lower than the peak of US$1,889.7 per ounce in August 2011, the Goldprice Web site showed.
DBS forecast that the Fed would not raise interest rates until the end of next year, due to slowing global growth and tame inflation, Chen said.
Despite speculation that the Fed might act after US President Donald Trump called for rates to be cut, that is not likely, as there has been no signal of a recession this year, a key condition for cutting rates, Chen said.
JPMorgan Asset Management also said that the Fed is unlikely to cut rates this year, as the possibility of a recession is still low, with economical gauges in the US, including employment, the purchasing managers’ index and inflation, still healthy.
“We think the Fed next year is more likely to hike rates than cut them, unless risks emerge, such as US-China or US-EU trade issues,” JPMorgan chief strategist for Asia Tai Hui (許長泰) said.
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