Gold starting to lose its shine, says S&P

Several asset allocators are growing cautious on gold as the price has continued to rise, analysis form Standard & Poor’s (S&P) has revealed.

With many using gold as a hedge against inflation or uncertain markets over recent years, a number are now trimming back exposure with some predicting the metal could be the next bubble.

Of the asset allocators surveyed, Laurence Boyle, who runs the WDB Assetmaster products, has maintained his gold as a hedge against a possible double-dip.

But Roberto Demartini, an analyst at S&P, highlights Barings, LGT, Union Investment and Legal & General growing less positive on the metal in recent months.

“At Barings, the team believes gold has not fulfilled a safe haven role as its performance has been correlated with that of other risk assets,” he adds.

“Elsewhere, LGT took some profits in gold miners despite remaining positive on the fundamentals while managers at Union have avoided the metal on the view gold prices are not backed by solid fundamentals.” (article continues below)

Meanwhile, he says asset allocators at Legal & General claim gold appreciation has been supported more by an environment of low interest rates and ample liquidity. If these factors disappeared and investor demand subsided, they feel gold could go through some weakness.

Looking ahead, Demartini says there is a developing divergence of opinion among asset allocators.

“On the one hand are the sceptics, such as the team at Newton, who remain cautious,” he adds.

“They point to fragile confidence and expect volatility to stay high. On the other, the more upbeat view is characterised by the team at KAS (Deutsche Postbank) who are positive on markets and expect a rebound after the summer. They point to the fact dividend yields are attractive and the reporting season has been positive so far, whereas bonds are expensive.”