Gold in focus

Many analysts have been surprised by the strength of the recovery from COVID-19 lows across global stock markets. Although central banks around the world have stepped in with monetary policy action and govt's have implemented fiscal stimulus wider questions remain. The most obvious being how will earnings recover in COVID-19 viral landscape. Social distancing measures should limit footfall (and profits) until a vaccine has been found. Gold has hit a one month high this morning as rising US COVID-19 cases raise concers over a swift economic recovery.

Private banks advising clients to hold gold

According to Reuters most private banks normally recommend hat clients held none or virtually no gold. Now, some banks are reportedly advising clients to hold up to 10% of their portfolio in gold. This is due to the high levels of stimulus which is forcing bond yields lower. This in turn keeps interest rates low and makes non-yielding gold more attractive. As cash is devalued by banks QE programmes then gold gains in appeal.

Gold further to run?

Since the start of the year gold has run more than 12% and many analysts still see $1800 and above the next port of call for gold. Reuters spoke to 9 private banks overseeing $6 trillion in assets of the world's ultra rich and they had all advised clients to increase their gold holdings. It is worth noting that if we see equity markets falling further it would potentially have a disproportionate impact in gold upside. Bond and equity markets have an estimated $200 trillion value while the smaller gold market is estimated to be less than $5 trillion.

Gold in focus

The most common way to benefit from a potential self-fulfilling prophecy on gold's rise is from a choice of four. Gold mining companies, index funds tracking gold, derivatives such as options and futures, and gold itself in the form of bars or coins.