Is it time to increase the weight of gold in the portfolio?

  • Current positions in gold-traded funds point to a potential profit for the price of gold 
  • The role of gold will gain presence in portfolios as geopolitical risks increase
  • DWS, eToro and WisdomTree share their forecasts for gold in 2019

By Funds Society, Madrid
Investors, who continue to fear a short-term recession, have begun to look for safe haven assets, which boosted the value of gold during the first month of the year. In fact, the price of gold managed to recover during the fourth quarter of 2018, while risk assets, such as stocks and corporate bonds, suffered.

“When looking for factors that explain the movements of the price of gold, several things come to mind: for example, the price of gold correlates with the real returns of US government bonds, as we discussed last time in July 2017. As it was shown, gold prices tend to rise when real returns fall, and vice versa, “they explain from DWS .

After a peak at the beginning of this decade, both stocks and gold prices were reversed. From this perspective, current positions in gold-listed funds point to a potential for profit for the price of gold. But there are more arguments in favor of gold, as explained by Christian Hille, head of multiple assets at DWS.. The portfolios it supervises mainly contain gold for reasons of diversification. The movements of last December give more weight to this argument. In the current environment, which is mainly characterized by political risks that are difficult to calculate, the role of gold will take center stage. In addition, the cost of opportunities to have the “yellow metal” in the portfolio will remain low taking into account the relatively low returns compared to the historical one.

According to Mati Greenspan, senior analyst at eToro , gold is and will remain very sensitive to all the geopolitical events that the international scene accumulates. “Equity markets celebrate the rapprochement between US positions and China, an improvement that is also reflected in gold and oil “, says Greenspan as an example.

For its part, the team of analysts of WisdomTree notes that “gold is expected to continue its recovery during 2019.” As they point out, the economic / monetary factors driving the value of gold – small increases in interest rates, a slight appreciation of the dollar followed by a depreciation and a marginal increase in inflation – are not going to move the metal dial meaningful way

“We believe that by the end of our projection period, gold prices will end higher as a result of a greater willingness of investors to have it in their portfolios after a depressed price phase. This process has already started over the last week of 2018 due to excessive volatility in most markets. Although in 2018 we have had many outbreaks of volatility, most markets in developed countries have managed to avoid it. This does not mean that they can maintain their solidity in the face of the next shock. It should be noted that the last time that the speculative positioning in gold was so low was in 2001, in the middle of the Argentine debt crisis and implosion of the overvalued technological sector. While the precious metal reacted to this stress scenario,

They also point to a series of risks that could support the price of gold, taking into account its historical status as a safe haven, which would also increase its position in the futures market. These risks are a Brexit without agreement, the commercial wars and the internal political tensions in the United States.

“We again have a speculative positioning in gold futures consistent with what has been verified during the last five years. On the other hand, we expect the ounce of gold to appreciate around the 1370 dollars for the fourth quarter of 2019, mainly as a result of a rearrangement of the speculative positioning in the futures market. Also, its value will be driven in part by a depreciation of the dollar and a slight increase in inflation, “conclude WisdomTree analysts.