Going for gold

Could gold be heading for its next bull run?

Key takeaways:

  • Whilst the US dollar has not only demonstrated safe haven characteristics while having the highest developed market carry at the same time, the euro has underperformed.This could be a sign that once again political risk is being priced in to the euro. 
  • Gold is a hot topic currently, and according to some experts, it might possibly have entered its next bull run. Low to negative yields continue to make gold appear attractive. But has this rise been too fast? 
  • Climate and Sustainability Awareness Bonds (green bonds) are an increased focus of the European Investment Bank (EIB), the first institution which issued a green bond nearly 20 years ago.

Global bond markets are getting complicated. With a cyclical peak in US 10y rates in 2019, we might have passed peak divergence in G4 rates. In Europe, which is currently one of the most expensive bond markets, easing is expected.

When it comes to FX, UBS macro analyst Themos Fiotakis believes that the US was, until now, in a 'have your cake and eat it' regime that has given the US dollar safe haven characteristics while having the highest developed market carry at the same time. On the other hand, the euro underperformed even more than what US dollar moves could explain. This could be a sign that once again political risk is being priced in to the euro.

Finally, in Japan, domestic levers in the area of interest rates, QE and fiscal stimulus appear all but exhausted, and forces outside Japan will largely dictate the upcoming path. We believe being long the Yen could be one of the most significant carry trade opportunities currently out there, in particular vs. sterling which has an asymmetric profile with limited recovery potential, even in the case of a 'good' Brexit.

Gold is a hot topic currently, and according to UBS's Precious Metals Strategist Joni Teves, it might possibly have entered its next bull run. Low to negative yields continue to make gold appear attractive, but it currently also trades slightly above UBS's fair value model, which could indicate the recent strong increase might have been too fast. That said, longer-term trends in central bank buying coupled with supply that should remain contained, looks set to provide long-term support. Various options exist these days for central banks to acquire and store physical gold, and the number of individual central banks that are purchasing gold has significantly broadened in 2018 according to a representative from the World Gold Council.

In the future, the work of investment professionals is expected to be enhanced through the use of sophisticated AI techniques. In the areas of research for example, an increase in forecasting quality is expected due to the use of sophisticated forecast calibration tools.

Further, question identification through AI tools looks set to enhance client interaction. At UBS for example, this is achieved with a large data base of questions asked by professional investors from which AI extracts a dictionary of core concepts that are mapped and clustered in a multi-dimensional way.

Climate and Sustainability Awareness Bonds (green bonds) are an increased focus of the European Investment Bank (EIB), the first institution which issued a green bond nearly 20 years ago. Ideally, systematic standard setting by the EU Commission and economic actors in cooperation will allow for the issuance of green bonds that are transparent, accountable and have systematic reporting. It is not only supranational institutions and Europe that are driving the green bond market, but also China. Their ongoing cooperation will be a key long term indicator of success.


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