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Morgan Stanley Makes 'Rare; Tactical Case To Own Gold

Kitco News

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(Kitco News) - Morgan Stanley may have little love for gold but the bank still sees some potential for the yellow metal as a tactical asset.

In a rare trade investment recommendation, Lisa Shalett, head of wealth management resources at Morgan Stanley Wealth Management, recommended that investors take profits in some of their equities and use it to build a 3% to 5% position in gold.

“While we do not see gold as a long-term holding, we believe it can be used tactically as a potential hedge for a stock-market correction and/or a reversal in the dollar and real interest rates,” she said in a report published at the start of the week. “We rarely use gold in our asset allocation, but occasionally there are opportunities and currently we see one of them.”

The sixth-largest bank in the U.S. expects that gold prices will eventually recover by the end of the year and push to $1,300 an ounce as market volatility rises, the U.S. dollar weakens and the yield curve continues to invert, highlighting the growing risk of a slowdown in the U.S. economy.

While the U.S. economy and stocks continue to outperform, Shalett noted that complacency is dominating investor sentiment. She added that she doesn’t expect that the U.S. economy can continue its current pace in relation to the global landscape.

One significant threat Shalett highlighted is the ongoing trade dispute with China. She said that if the U.S. government increases tariffs on another $200 billion in Chinese imports, it could drag global gross domestic product down by 0.5% next year.

“The relative outperformance of U.S. assets this year and this past decade is now at extremes. While that alone is not reason to question the durability of the trend, complacency is,” she said. “Our analysis suggests that current market positioning is not sufficiently discounting an interruption of the current trend in which growth is strong and the Fed is perceived as dovish, nearing the end of its hiking cycle. Although these conditions may in fact persist, gold may benefit from any reappraisal of the outlook.”

Although Shalett sees some potential for gold for the rest of the year, she said the she does not see it as a long-term investment.

“Since 2013, the Global Investment Committee no longer views gold as a strategic asset class, as it provides no interest or yield—and in the case of physical gold, there is a cost to store it. From an asset allocation perspective, gold’s correlations with stocks and bonds are unstable and it is subject to large sentiment swings around periods of crisis and fear,” she said. “What’s more, gold has not proven to be a good inflation hedge as it has generated little long-term wealth net of inflation.”

Shalett's comments come as the gold market continues to struggle to find momentum hovering around $1,200 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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