As Risk of Trump Policy ‘Mistakes’ Looms Large, Investment Veteran Backs Gold

There is rising political risks being faced by the the major markets and include issues like unpredictability of President Donald Trump. This has made investors jittery and they are seeking a shelter from such threats.

And hence, according to Independent Strategy Ltd.’s David Roche, who has about 45 years of experience covering markets, gold will climb about 6 percent through the end of the year due to this insecurity of investors.

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

“The amount of political risk being created by this new U.S. 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 from Hong Kong. “I want to see what this administration, what sort of mistakes they’re going to make.”

While investors still await the political uncertainty to happen in Europe with the impending elections, they are more concerned at the moment with the probable policies of Trump. Concerned with a storm over immigration curbs on seven Muslim-majority countries, his withdrawal from the Trans-Pacific Partnership and commitment to build a wall on the Mexican border, investors have been fired up with Trump’s first two weeks.

Roche said that increasing risk will lure investors to gold while the Federal Reserve may raise interest rates three times this year.

Reversing a 13 percent slump in the fourth quarter and posting an increase of 6.6 percent this year, prices have already risen to the highest in more than two months. Bullion was at $1,223.89 on Monday by 11:29 a.m. in Singapore.

“I probably would be more inclined to increase then 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 $1,160.” He said that even with the outlook for rising interest rates, the prospect for accelerating inflation is another reason to own gold.

However some banks are bearish. According to National Australia Bank Ltd, as the Federal Reserve tightens policy, the metal will drop to $1,140 by December and to $1,060 by the end of next year. Strengthening the dollar and pushing gold down toward $1,000 is the rising interest rates, expects BNP Paribas SA.

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

(Adapted from Bloomberg)

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Categories: Economy & Finance

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