As the Federal Reserve pumps stimulus into the financial markets, some of the world’s wealthiest are reallocating their assets into physical precious metals.
The historic stimulus issued by the Federal Reserve amid the coronavirus has placed the soaring stock market back on its previous track, and many investors have been quick to jump to optimism. Yet those managing the wealth of some of the world’s richest people suspect that the only true green in the stock market comes from the greenback’s tint.
Reuters recently spoke to nine private banks which oversee and manage a combined $6 trillion in their clients’ assets, and their opinions in regards to portfolio allocation lean heavily on the defensive side. After all, the stimulus-induced stock market recovery has only served to artificially prolong the longest-running bull market in history, one for which there was near-unanimous consensus in regards to a coming correction prior to the pandemic.
Kiran Ganesh, a member of UBS’s chief investment office, acknowledged that the threat of correction has become all the more palpable due to the stimulus, driving investors to actively seek out ways to hedge their portfolios against many different scenarios. Despite the stock market being seen as gold’s biggest competitor, UBS predicts that low interest rates and hedging demand could drive gold prices to a minimum of $1,800 by year’s end, with leeway for the metal to surge past $2,000 should pandemic-related complications arise once again.
While most banks recommended a minimal portfolio allocation to gold prior to the pandemic, each of the nine banks is now urging clients to increase their gold exposure by up to 10%. Furthermore, four of the representatives forecast even higher prices by the end of the year despite gold’s precipitous climb so far.
Among the many reasons cited by the banks’ shift in stance, gold’s protective properties in both inflationary and deflationary environments is a primary one. Lisa Shalett, Chief Investment Officer of Wealth Management at Morgan Stanley, sees a coming debasement of the U.S. dollar as perhaps the strongest argument for owning gold. Morgan Stanley has added a 5% allocation to commodities including gold in all of its models back in March, with Shalett noting that the exposure could climb to 10% if inflation surges.
Shalett also noted that many of her bank’s senior clients have shown a particular interest in gold due to their historic perspective in regards to wealth preservation. John LaForge, head of real asset strategy at Wells Fargo Investment Institute, and Oliver Gregson, head of the United Kingdom and Ireland at JPMorgan Private Bank, likewise said that inquiries about gold have gone up by a significant margin for similar reasons. Gregson’s bank pegs a target of $1,750 for gold by the end of the year.
Andre Portelli, co-head of investments at Barclays Private Bank, also singled out physical gold as a key point of interest among many of the bank’s clients, stating that clients who began purchasing gold as the pandemic rolled out intensified demand for bullion as supply came into question.