Calls by big analysts to buy gold are pretty rare these days, so when the sixth largest bank in the U.S. comes out with a nudge, gold bugs start foaming at the mouth with righteous indignation.
That’s exactly what Morgan Stanley has done—even if it really doesn’t like gold much.
This isn’t about love for gold—it’s about tactical trading.
As detailed by Kitco, Morgan Stanley’s Lisa Shalett—head of wealth management resources—recently recommended that investors divest some of their equities in favor of a position in gold up to 5 percent.
They’re not saying they love gold all of a sudden, but Shalett is saying that it’s a good hedge against a stock-market correction, for starters:
“While we do not see gold as a long-term holding, we believe it can be used tactically as a potential hedge for a stock-market correction and/or a reversal in the dollar and real interest rates,” Shalett said. “We rarely use gold in our asset allocation, but occasionally there are opportunities and currently we see one of them.”
Morgan Stanley sees gold recovering by the end of the year. Right now, gold is at just over $1,201, but the bank sees it hitting $1,300 an ounce thanks to a confluence of factors: rising market volatility, weakening U.S. dollar and an inverting yield curve. In other words, an economic slowdown.
Investors have grown too complacent, Shalett says, but stocks aren’t likely to continue to outperform, and the U.S. economy isn’t likely to continue to grow at its current pace. And it’s the U.S.-China trade dispute that’s the elephant in the room. Related: Is A Market Meltdown Looming?
“The relative outperformance of U.S. assets this year and this past decade is now at extremes. While that alone is not reason to question the durability of the trend, complacency is,” Shalett noted. “Our analysis suggests that current market positioning is not sufficiently discounting an interruption of the current trend in which growth is strong and the Fed is perceived as dovish, nearing the end of its hiking cycle. Although these conditions may in fact persist, gold may benefit from any reappraisal of the outlook.”
Again, Morgan Stanley isn’t calling on everyone to embrace gold over the long term. They only see the potential from now until the end of the year. As an asset, the bank doesn’t view gold as terribly strategic. In fact, “gold has not proven to be a good inflation hedge as it has generated little long-term wealth net of inflation.”
So, it’s a one-time bet on a stock market correction.
And in the meantime, other analysts are saying that it’ll be at least another week before we see any change in direction in gold.
“Right now the market is telling investors that they need to be patient,” Ole Hansen, head of commodity strategy at Saxo Bank said, as reported by Kitco. “I think we will have to wait until after the next Fed meeting before we see any new direction in gold.”
By Tom Kool for Safehaven.com
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