CIO continues to see gold as an effective portfolio hedge and diversifier, and believes an allocation of around 5% within a USD balanced portfolio is optimal. (UBS)
Gold has made fresh all-time highs this week amid tariff concerns and more evidence of heavy central bank buying, trading above our long-held forecast of USD 2,850/oz. This marks a climb of more than 10% since mid-December, when the Federal Reserve signaled a more hawkish stance around its pace of monetary policy easing While we acknowledge the current spot price of USD 2,870/oz is above our fair-value estimate, gold’s enduring appeal as a store of value and hedge against uncertainty has again proven itself. We have therefore raised our gold forecasts to USD 3,000/oz over the next 12 months.
Our base case remains that significant tariffs against Canada and Mexico are unlikely to be sustained for a prolonged period, and that the ratcheting up of the US’s effective tariff rate on China to 30% will be gradual. But, we also believe gold will continue to be supported throughout the year by elevated uncertainty, an extension of the global rate-cutting cycle, and strong investor and central bank demand.
We continue to see gold as an effective portfolio hedge and diversifier, and believe an allocation of around 5% within a USD balanced portfolio is optimal. Direct exposure to the metal may dampen risk in portfolios. Structured strategies linked to gold may be able to sell volatility to generate yield while potentially offering the opportunity to buy gold at prices lower than current levels. Equities linked to gold (such as gold miners) may offer greater capital gains potential but are likely to be more volatile and act like equities in times of risk aversion. We believe gold and the means to invest in it (directly or indirectly) should form part of a well-diversified portfolio.
Original report: Gold can shine even brighter, 6 February 2025.
