Gold logs best month since 2012, gets major push from Deutsche Bank, Citi

Posted on

Gold stumbled Friday after the fourth-quarter U.S. GDP estimate surprised to the upside, but it just logged its best month since at least 2012.

Gold is up about up 9% in February alone, and volumes on the biggest futures exchange, the Comex, jumped to their highest level ever confirming that investor interest is massive.

Gold-silver ratio soars: The gold-silver ratio also has zoomed above 80, its highest level since at least 2008, suggesting either a secular squeeze in physical gold and/or a risk related flight to safety, noted one analyst.

Its just pure risk and fear thats driving gold, UBS exec Wayne Gordon told Bloomberg. People are unduly worried about a sizable depreciation of the Chinese yuan, people are concerned about European credit, and people are worried about a U.S. recession.

The metal also continues to draw outspoken support from some high-profile corners.

Time to buy golden insurance: Deutsche Bank is the latest major financial institution to issue a bullish take on gold a stance that is no surprise given that its chief U.S. economist, Joe Lavorgna, has been predicting a recession for a while now. In a new note, it urged investors to buy bullion for financial insurance.

There are rising stresses in the global financial system; in particular the rising risk of a U.S. corporate default cycle and the risk of a sharp one-off renminbi devaluation due to the sharp increase in Chinas capital outflows, it said. Buying some gold as insurance is warranted.

A bit like insurance, which is often a grudge purchase for many, some investors may balk at the current levels, it said. We would, however, argue that given the plethora of negative deposit rates globally, the holding cost of gold is now negligible in many jurisdictions, and therefore gold deserves to be trading at elevated levels versus many other assets.

We think the (economic) risks are to the downside. Gold has tended to underperform in an environment of strong global growth, so whilst not an outright tailwind, slowing growth certainly eases the pressure on gold, it concluded.

Gold to trump cash in portfolios: Deutsche isnt alone. Citis global asset allocation team also has come out swinging for gold, touting its overweight stance and declaring that has gone even longer on precious metals.

To balance the portfolio, cash goes to underweight in a negative rate world gold may replace cash in portfolios, the team said.

Meanwhile, another financial behemoth, Bank of America Merrill Lynch, confirmed Thursday that gold funds accumulated their largest inflows since 2009 and equity funds posted their longest run of outflows since 2008 in the last week as financial market turmoil continued to unnerve investors, Reuters reported.

$5.8 billion into gold over 3 weeks: Through Feb. 24, $2.6 billion was invested into gold funds, bringing the three-week total to $5.8 billion, the most money since June 2009.

Inflows have coincided with the Fed talking down the U.S. dollar and rising investor fears of recession, the BAML global investment strategy team noted.

With a roughly 16% gain this year, gold is back on the radar of some prominent financial institutions. Investors might do well to take this trend into account in their own portfolios.