Gold may be sharply below its peak value last year, but a fear that policymakers will allow "a surge in inflation" in the long term is leading Rothschild Wealth Management to like the prospects for gold, and hold it in client portfolios.
Gold may be sharply below its peak value last year, but a fear that policymakers will allow “a surge in inflation” in the long term is leading Rothschild Wealth Management to like the prospects for gold, and hold it in client portfolios.
At $1,730 per troy ounce, bullion is now well below the peak of over $1,920 it hit in September.
It has fallen through its 200-day moving average trend line for the first time in three years, and at the end of 2011 net long interest in gold futures hit its lowest level in over two years.
Investors were perhaps spooked by such a long good run – the longest unbroken rise since the free-float in the early 1970s.
But Rothschild says Bern and Tokyo are actively devaluing their currencies, and the outlook for fundamentals behind the US dollar, euro and sterling are poor.
Such weakening of paper currencies, in turn, strengthens the attractions of gold, whose production is limited to discovery, helping it retain value.
Rothschild notes that investors have preferred to buy US dollars rather than gold as a store of value.
But the wealth manager adds the support for the US dollar is now “going from bad to worse”.
The gold price will remain volatile, in RWM’s view, but “the long-term outlook is bright and the investment case for gold remains robust.
“In short, it is increasingly attractive as the only truly hard currency. Gold will continue to be the main beneficiary of central banks’ extremely loose monetary policies,” says Dirk Wiedmann (pictured), head of investments at Rothschild Wealth Management.