Are Gold Prices too Expensive Now?

We Sat down with Carlo Alberto De Casa and got his insights in regards to the gold market and where is it heading.

Do you recommend keeping gold in your portfolio even though it is now at such a high price?

There is a lot of research that demonstrates that holding a small percentage of gold in a portfolio is positive for investors. Bullion can help investors in a scenario of bearish stock markets, but also if there is any tension in the currency markets or any other systemic risk. In other words, it is crucial to hold a small percentage of the yellow metal in your portfolio, generally between 1 and 10%, in order to mitigate risks. This percentage should vary depending on market movements and of course of the gold price, but the answer remains positive: yes, some gold in portfolio definitely makes sense even with its high price currently.

Gold has fallen around 5% since September, do you think it will recover and return to the broadly upward trend of the year?

We should not forget the significant recovery which occurred in the first half of 2019 on gold. Bullion has now fallen below the key level of $1,500 per ounce, this means we are “only” 5% down from the 6-year-peak reached in September. This decline was mostly due to some profit-taking after a long rally and to a more risk-on scenario seen in markets. In the short term, there is some weakness, but the long-term trend still appears positive. In other words, as long as the price remains above $1,450, we are only seeing a consolidation phase and not yet an inversion.

What are the main factors that have caused the metal to have such a bullish year?

There are many market drivers behind the rally seen in the first part of the year. Investors switched expectations from a hawkish Fed to a dovish one, while a similar scenario has been seen in Europe, with Mario Draghi launching a new phase of QE in the final part of his presidency. Moreover, there are still fears of an economic slowdown in 2020, or even a recession. This could push down stocks, generating a new rush to safe assets. In this uncertain scenario gold is king. Another important point is related to the hunger of gold shown by central banks, which are buying gold at an incredible pace (including Russia and other countries).

What are the factors that could continue to drive the gold rise in the future?

The answer is more or less similar to the previous one, as economic fears, uncertainty on stock markets, geopolitical risk, low rates and huge demand from central banks could generate further rallies. Moreover, the latest report released by the Wold Gold Council confirmed the growth from the ETF sector, which hit a new record at 2,855 tonnes, thanks to the largest ETF inflows of the last 15 quarters. This is another factor to be considered, in this new phase for gold.

Carlo Alberto De Casa – Chief Analyst, ActivTrades