Gold is behaving more like a growth asset than a safe haven, which only strengthens the traditional investment case for the precious metal, according to Sadiq Adatia, chief investment officer at BMO Global Asset Management.
“Gold is not behaving as it normally does,” Adatia said in an earlier interview. “Typically, it’s a hedge against inflation, it’s a hedge against the dollar and it usually reacts to U.S. yields.”
He added, “What we’ve seen in the first half of this year is that gold has been strong, the dollar has been strong, it’s gone up even without risk aversion, and people are holding it for a number of different reasons, not just the traditional ones. Sovereign wealth companies and countries are buying gold as an alternative store of value.”
In fact, gold has actually outperformed the S&P 500 over the past six months, rising 20% while the S&P 500 has risen 18% even as stocks have hit consecutive all-time highs in the recent bull market.
Adatia said there were a number of factors driving gold prices higher, including continued concerns about a potential recession, central bank gold buying and rising interest from sovereign wealth funds.
“You’re also seeing consumers buying more gold, with Costco selling out of gold bars this year,” he said. “At the same time, people are holding gold for normal reasons, because they’re worried about a downturn in the economy or a weak consumer. There are so many reasons why people are holding gold, and it’s a huge increase in investment opportunities.”
With gains in the so-called “Big Seven” outpacing broader indexes, this could be “the most unpopular bull run we’ve ever seen,” Adatia said.
Still, he doesn’t expect gold to continue outperforming the S&P 500, citing China’s central bank’s two-month pause in gold purchases and easing inflation data in the U.S. and Canada.
“I think people should own gold for the normal reasons they want to own it, like protection against market volatility, inflation and the dollar,” Adatia said. “Those are the reasons you want to own gold, and everything else is icing on the cake.”
In late June, commodity analysts at BMO Capital Markets raised their gold price forecasts by 5% across the board, predicting that gold prices will not fall below $2,000 an ounce over the next four years.
In the short term, the Canadian bank expects gold prices to average around $2,263 per ounce this year, 4% higher than their previous average forecast of $2,168. Looking forward to 2025, BMO expects gold prices to average around $2,200 per ounce, 5% higher than the bank's previous forecast of $2,100.
While gold is expected to remain range-bound in the third quarter, BMO expects prices to remain strong through the end of the year, with prices expected to average $2,350 an ounce in the fourth quarter.
Analysts say central bank demand for gold is changing the precious metals investment landscape, a key factor as gold has largely ignored higher interest rates brought on by the Federal Reserve’s aggressive monetary policy.
“Perhaps the most important aspect is that incremental gold buyers have shifted from price-sensitive consumers to AUM-sensitive asset allocators to mandate-driven central banks. This shift is a key reason why gold has been trading above the cost curve for the past few years, in our view, and we believe the beginning of central bank de-dollarization will be a secular trend over the next decade.”
The article is forwarded from: Jinshi Data
