Thursday, 11 October 2012

Pimco Turn Goldbug

Mainstream investment houses continue to come to recognise the case for gold......

Recently I posted Deutsche Bank's pro-gold paper.
Here a review from the Bond Kings at Pimco questioning the value of the fiat currencies in which their bonds are denominated.
Could value held in bonds, at the top of a 30 year bull market, be ready to flow to gold?

We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future. 

To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.  

No comments:

Post a Comment