Goldman Chooses Japanese Yen Over Gold As Best Hedge
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(Kitco News) - Investors looking for a cheap, safe-haven asset should look at Japanese yen and not gold, said Goldman Sachs.
“We think both assets can play an important role in diversifying risk in a strategic asset allocation and protect against both growth and rate shocks,” Goldman strategists led by Alessio Rizzi wrote in a recent note.
Considering gold’s latest surge, Goldman feels the metal’s upside could be limited, which is why the yen might be “a more attractive hedge tactically.”
Gold prices soared this past month, hitting fresh six-year highs on Friday. This week, the precious metal has been trading steadily above the $1,420 an ounce level with August Comex gold futures last at $1,423.90, up 0.15% on the day.
Investors have been increasingly interested in safe-haven assets this year due to slower global growth concerns and looser global monetary policies, the note explained.
Highlighting the yen’s safe-haven appeal, Goldman strategists said the yen and gold have a similar relationship to the U.S. dollar, real rates, and risk-off environments.
“Implied volatility and options-call skew are expensive now for gold and buying calls on the yen appear attractive,” the note stated.
In terms of returns that both assets could offer, Goldman projects gold could rise 3.2% in the next year while the Japanese currency is estimated to advance around 4.6% relative to the U.S. dollar.
Since the beginning of the year, spot gold rose more than 11%, while the yen rose only around 1.6% against the U.S. dollar during the same time period.