Following the "Central Mother"! Bank of America calls on investors: continue to buy gold
Bank of America strategist Hartnett recommends investors to continue buying gold, despite its historical high price. It is expected that the Fed's interest rate cut will trigger inflation, and gold performs well in this environment. Despite gold rising by 20% this year, with a net outflow of $2.5 billion, the main buyers are central banks, especially the People's Bank of China. In the first half of this year, global central banks purchased a record 483 tons of gold. Hartnett points out that gold is a low-correlation asset and recommends focusing on the IAUM and GLDM gold ETFs
Michael Hartnett, an investment strategist at Bank of America, believes that investors should buy gold even as the price of gold hovers at historic highs.
In a report last Thursday, Hartnett wrote, "Investors should 'do what central banks are doing... buy gold'."
Hartnett believes this is because the Federal Reserve's rate cuts in the coming months could trigger an inflation rebound next year, and physical assets like gold have historically performed well during inflationary periods.
As Hartnett made these remarks, gold saw a record-breaking surge. So far this year, the price of gold has soared by about 20%, outperforming the S&P 500 index and tech stocks.
Hartnett pointed out that gold is the only asset outperforming U.S. tech stocks.
The puzzling factor behind the rise in gold prices is that investors have not been chasing gold. On the contrary, gold ETFs have seen net outflows of $2.5 billion so far this year, indicating that investors have been taking profits amid the record-breaking rally in precious metals.
This also means that the buying interest in gold comes from another group in the market.
Hartnett said, "Only unprecedented central bank buying can explain the phenomenon of record-high gold prices coexisting with outflows of funds." He added that the People's Bank of China is the largest gold buyer in 2023.
According to data from the World Gold Council, central banks around the world purchased a record 483 tons of gold in the first half of this year. At current prices, each ton of gold is worth about $81 million.
This trend may still have a long way to go. Data from the World Gold Council shows that gold currently accounts for only 5% of China's reported foreign exchange reserves, about 10% of India's foreign exchange reserves. Meanwhile, gold accounts for 72% of the U.S. foreign exchange reserves and 70% of the foreign exchange reserves of certain Western wealthy countries including Germany, Italy, and France.
Hartnett stated, "Gold is currently the world's second-largest reserve asset (ahead of the euro at 16.1% compared to 15.6%), and one of the assets with the lowest correlation to stocks."
Hartnett believes that gold ETFs to consider include IAUM and GLDM, referring to these two funds as "top funds."
Analysts still have differing opinions on whether to include gold in investment portfolios. The traditional view is that gold does not have the ability to produce new value and cannot be valued based on any modern financial metrics, with any attempt to accurately calculate its value being mere speculation.
However, gold has its loyal supporters. The most obvious point is that it remains the only currency not controlled by any government. Given the disastrous deterioration of the U.S. fiscal situation, its independence from the dollar may be particularly important. Additionally, expectations of lower interest rates in the coming months may help boost the price of gold.
Doug Ramsey, Chief Investment Officer and Portfolio Manager at The Leuthold Group, includes gold as one of the seven assets in his "All Asset No Authority" permanent investment portfolio This means that the investment portfolio will stably hold 14% of gold in its account