The gold price has already risen by more than 40 percent in a year. Private banks are not deterred by this significant price increase from designating the precious metal as the ideal hedge against geopolitical turbulence in the Trump II era.
“Every portfolio that we manage on a discretionary basis for our clients includes gold, and even in our advisory management, we standardly recommend gold,” said Geoffroy Vermeire, managing director of Lombard Odier in Belgium.
Around the time of the Covid-19 crisis in 2020, the private bank added the precious metal to its strategic allocation, when real interest rates were negative. Even when real interest rates turned positive, this strategic positioning remained unchanged due to geopolitical unrest.
Lombard Odier’s positive outlook on gold is largely influenced by the import tariffs and unilateral geopolitical strategy of the new US President, Donald Trump. There are concerns that trade protectionism could lead to significant inflation. Investors hope that in such a scenario, gold will retain its value.
Furthermore, the precious metal continues to serve its traditional role as a safe haven in times of geopolitical turmoil. “From a portfolio management perspective, gold is the ideal diversifier and hedge against other assets,” said Vermeire.
“One thing is certain: with Trump as president, we can expect surprises and uncertainty. One statement is barely cold before another, inflationary one follows. He barks a lot, but will he bite? Time will tell.”
Gold price heading towards 3.000 dollars?
The gold price has surged in recent weeks, reaching levels above 2.900 dollars per troy ounce (31.1 grams). Gold has essentially been on the rise since the Covid-19 crisis. Expressed in euros, the gold price rose by 35 percent in 2024, with an additional increase of approximately 10 percent since the start of the year.
Nevertheless, private bankers believe it is not too late to jump on the bandwagon. “We maintain our exposure to gold in our asset allocation and complement it with exposure to other commodities for diversification, such as copper and aluminium,” according to Puilaetco.
The private bank, part of the Quintet group, currently holds approximately 2,75 percent gold in its ‘balanced’ portfolios. “Previously, we were around 4,5 percent, but we decided to diversify our exposure towards other commodities, such as industrial metals,” said Puilaetco.
“Despite gold’s high valuation, several factors continue to support its price: the massive purchases by various central banks—especially in emerging markets—that are increasing their gold reserves, the prospect of interest rate cuts that have already begun in 2024, and the recent trade tensions.”
Lombard Odier took some profits on gold last week and expects a short-term cooling. However, over the next twelve months, the private bank actually anticipates an even higher price, somewhere around 3050 dollars or more. It is a matter of supply and demand, said Vermeire. “While supply remains stable or increases slightly, demand continues to rise. Central banks, which seek to reduce their reliance on the dollar as the basis for their reserves, play a key role in this.”
Van Lanschot Kempen also highlighted this. “The gold price remains high. We believe the gold price is primarily supported by central bank gold purchases. How long this will last, we cannot predict. Gold is attractive in times of uncertainty, but given its high price, much of that uncertainty and/or interest rate cuts have already been priced in,” states the bank’s latest allocation report.
The demand for physical gold from central banks accounted for 1,050 tonnes last year out of a total global demand of 4,945 tonnes, according to statistics from the World Gold Council. That is nearly as much as demand from investors (1,190 tonnes, of which 782 tonnes in bars and 408 tonnes in coins and medals). The remainder of the gold demand comes from the jewellery sector.
This global demand from central banks is increasing. In the last quarter of 2024, they collectively purchased more gold than ever before in a ten-year period. Particularly since the freezing of Russian assets, central banks have been diversifying their reserves more, argues Axel Botte, head of Market Strategy at Ostrum AM.
With the sustained demand from central banks, he believes there is ample room for a further rise in the gold price. He specifically points to interest from emerging markets and a ‘new impetus’ from China. The authorities there intend to allow insurers to invest 1 percent of their total assets in gold.
ETFs or physical gold?
The global gold rush is leading to unusual situations. Due to fears of Trump-imposed tariffs on gold itself, the precious metal is trading lower in London than in New York. As a result, major banks are flying gold bars across the Atlantic, according to the Wall Street Journal last week.
Are gold-loving clients of private banks also keen on bars, coins, or jewellery? Or do gold investors prefer digital alternatives such as ETFs? Physical gold is, of course, the ultimate hedge against a financial system crash, as it remains accessible even if the internet goes down. However, home storage is discouraged for security reasons, and external vaults come with storage costs, bankers warn.
“We clearly see a preference among our clients for ETFs due to their ease of use,” said Puilaetco. “Such trackers provide exposure to gold at lower costs, without concerns about storage, liquidity, or transaction times.”