Investment veteran favours gold on risk of Trump ‘mistakes’

Investment veteran favours gold on risk of Trump ‘mistakes’
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(Feb 6): Gold will climb about 6% through the end of the year as investors seek shelter from the rising political risk surrounding President Donald Trump, according to Independent Strategy Ltd’s David Roche, who has about 45 years of experience covering markets.

Bullion is set to rise to US$1,300 an ounce, while most assets, such as bonds, will post negative returns, the president and global strategist at the London-based economic and financial consulting firm, said in an interview on Feb 3.

“The amount of political risk being created by this new US president and administration is going to create an enormous amount of international tension and uncertainty, and will probably result in a trade war at least with China and possibly other areas,” Roche said by phone from Hong Kong. “I want to see what this administration, what sort of mistakes they’re going to make.”

Trump’s first two weeks in office have fired up investor concerns with his withdrawal from the Trans-Pacific Partnership, commitment to build a wall on the Mexican border, and a storm over immigration curbs on seven Muslim-majority countries. While the Federal Reserve may raise interest rates three times this year, increasing risk will lure investors to gold, Roche said.

Prices have already risen to the highest in more than two months and posted an advance of 6.7% this year, reversing a 13% slump in the fourth quarter. Bullion was at US$1,223.89 on Monday by 1.53pm in Singapore.

UBS View

“I probably would be more inclined to increase than decrease at the present time,” Roche said, referring to gold’s recommended weighting in a diversified portfolio. “I might do that if the gold prices are a bit weak, if it drops back below let’s say US$1,160.” The prospect for accelerating inflation is another reason to own gold, even with the outlook for rising interest rates, he said.

Some banks are bearish. The metal will drop to US$1,140 by December and to US$1,060 by the end of next year as the Federal Reserve tightens policy, according to National Australia Bank Ltd. BNP Paribas SA expects rising interest rates to strengthen the dollar and push gold down toward US$1,000.

Roche said in April he’d increased gold holdings on the back of concern over central bank policy after being short a long time. He worked at Morgan Stanley before starting Independent Strategy in 1994. The firm offers institutional investors research on worldwide strategy and asset allocation.

UBS Wealth Management agrees with Roche’s view. Bullion will rise to US$1,300 as real interest rates turn increasingly negative and the dollar weakens, Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at the unit of UBS Group AG, said in a Bloomberg TV interview Monday.