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Updated 09:48 26/10/20

Investment Veteran Favours Gold on Risk of Trump ‘Mistakes’

By Daryl Jackson, News Editor

06 Feb 2017

Gold will climb about 6 percent through the end of the year as investors seek a shelter from the rising political risk surrounding President Donald Trump, according to Independent Strategy Ltd.’s David Roche, who has about 45 years of experience covering markets.

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

“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 by phone from Hong Kong. “I want to see what this administration, what sort of mistakes they’re going to make.”

Trump’s first two weeks in office have fired up investor concerns with his withdrawal from the Trans-Pacific Partnership, commitment to build a wall on the Mexican border, and a storm over immigration curbs on seven Muslim-majority countries. While the Federal Reserve may raise interest rates three times this year, increasing risk will lure investors to gold, Roche said.

Prices have already risen to the highest in more than two months and posted an advance of 6.7 percent this year, reversing a 13 percent slump in the fourth quarter. Bullion was at $1,224.09 on Monday by 8:24 a.m. in London.

UBS View

“I probably would be more inclined to increase than 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.” The prospect for accelerating inflation is another reason to own gold, even with the outlook for rising interest rates, he said.

Some banks are bearish. The metal will drop to $1,140 by December and to $1,060 by the end of next year as the Federal Reserve tightens policy, according to National Australia Bank Ltd. BNP Paribas SA expects rising interest rates to strengthen the dollar and push gold down toward $1,000.

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

UBS Wealth Management’s view on prices is similar to Roche. Bullion will rise to $1,300 as real rates turn increasingly negative and the dollar weakens, Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at the unit of UBS Group AG, said in a Bloomberg TV interview on Monday.

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