Gold’s rally may have paused, but the world’s biggest wealth manager still thinks a 10% allocation to bullion is ‘not a bad move right now’

FILE PHOTO: Gold coins are displayed at the Ginza Tanaka store in Tokyo September 18, 2008. REUTERS/Yuriko Nakao/File PhotoReuters

Summary List Placement

  • Gold prices have lost some ground in recent weeks, but the world’s largest wealth manager thinks it should still play a key role in investors’ portfolios.
  • Charles Day, private wealth advisor at UBS Wealth Management told Business Insider: “In terms of being diversified with everything that has gone on, having a small allocation, maybe up to 10%, is not a bad move right now.”
  • Gold prices surged in August, crossing the $2,000-an-ounce mark for the first time ever.
  • Prices have fallen in recent weeks but some market watchers think the rally isn’t over.
  • Visit Business Insider’s homepage for more stories.

Gold has been one of the biggest bull markets of 2020, hitting record highs and attracting record investment. The rally has slowed down in the last month, raising the question of whether investors should hold so much of it.

But UBS, the world’s biggest wealth manager, still thinks the precious metal can still form up to 10% of a diversified portfolio.

Charles Day, private wealth advisor and senior portfolio manager at UBS Wealth Management told Business Insider in an interview: “I do think the rally has paused over here. But in terms of being diversified, with everything that has gone on having a small allocation, maybe up to 10% is not a bad move right now.”

He added: “I think there is [still] room for that.” Day bought gold for the first time in about ten years towards the end of last year, when the price was below $1,600 an ounce.

The price of gold is currently hovering around $1,929 per ounce.

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Last month, gold crossed $2,000 for the first time in history on the back of greater geopolitical tensions and a weaker dollar. It hit an all-time high of $2,063.68 on August 6.

But the rally has slowed down over the last month. Gold price closed at its lowest level in almost a week on Thursday at $1930.30.

Day’s view reinforces gold is still a good hedge against a weak dollar.

He added: “It could be a good hedge with interest rates where they are, with the dollar where it is and with the markets where they are.”

A weaker dollar is usually supportive for gold prices. This is because it makes it cheaper for non-US investors to buy bullion, which is quoted in US dollars.

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The Fed and central banks across the world have poured billions of dollars worth of stimulus to help economies ride out the pandemic. This drives down interest rates and yields and increases gold prices.

Unlike cash, gold prices do not offer any return. So when interest rates are low, it means investors have to sacrifice less to hold the precious metal.

“I had not bought gold in over a decade until the end of last year. UBS said it [is beneficial] to have a small allocation to gold. I put in a 5% allocation at the end of last year,” Day said.

His views are in line with Standard Chartered’s strategist Manpreet Gill who said last month “We think gold’s run … hasn’t quite finished yet.”

“It comes back to interest rates. One of the best explanations of why gold has surged the way it has through this year have been bond yields,” Gill added.

But not everyone is convinced that gold has much upside.

“I own Google, I own Amazon, I own Microsoft, and Facebook,” investor Leon Cooperman told CNBC during an interview Monday. “They’re better than gold.”

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