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Perspective: S&P 500 short side off highs

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Gold wipes $560 billion from central banks as equities rally

By Debarati Roy and Joe Richter, Bloomberg

April 17, 2013 • Reprints

Attractive Equities

At the same time, the S&P 500 has more than doubled from its 12-year low in 2009, helped by the Federal Reserve’s unprecedented bond purchases, record-low interest rates and three straight years of profit growth.

“The equity trade is looking attractive because the fundamentals in the U.S. economy continue to improve,” John Stephenson, a senior vice president and portfolio manager who helps oversee C$2.8 billion ($2.74 billion) at First Asset Investment Management Inc. in Toronto, said in a telephone interview. “It’s been a great 12-year run, but there’s increasingly less reason to be in gold.”

Gold, which typically doesn’t pay interest or generate profits on its own, has traditionally become more popular when investors are concerned that values of other assets will be eroded by inflation.

‘Bubble’

“If you think about the intrinsic value of gold, there’s not a lot,” Guy Debelle, assistant governor at Australia’s central bank, which owns 79.9 tons, said at a business lunch in Canberra on April 16. “Gold often has a high price because people believe that other people believe that it’s worth a lot. When you describe other markets like that, the word ‘bubble’ gets thrown about.”

Individual investors added $19.5 billion this year to mutual funds holding U.S. equities, after removing $400 billion in the previous four years, according to the Washington-based Investment Company Institute.

“Since the opportunity cost to hold gold was very high, people moved to the more remunerative assets like equities and cash,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama.

Remaining Bullish

Some investors remain bullish.

Billionaire John Paulson, 57, is sticking with his bet on higher prices. He started 2013 with about $9.5 billion invested across his hedge funds, of which about 85% is invested in gold share classes. This year’s slump through April 15 erased $1.5 billion of his personal wealth, on paper. Paulson is sticking to the thesis that the metal is the best hedge against inflation and currency debasement as countries pump money into their economies, according to the New York-based firm that manages about $18 billion.

“The outlook for gold for us is really positive in the long term,” Catherine Raw, a fund manager in London at BlackRock Inc., which oversees about $3.8 trillion globally, said in an interview yesterday on Bloomberg Television with Francine Lacqua. “The probability of inflation over the next five years is higher, not lower, than it was last year. Other things, such as cash losing money, the Cyprus event, savings being targeted, means people are looking for alternatives.”

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About the Author

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Related Terms
US Federal Reserve 8527Gold 7715bank 6455commodities 3439Metals 3360metal 3075financials 2975stocks 2123International Monetary Fund 1712equities 1690Department of Labor 1011Goldman Sachs Group Inc. 864New Jersey 590Massachusetts 585SPDR Gold Trust 436Bloomberg Television 360George Soros 225Central banks 204John Paulson 199Alabama 165BlackRock Inc. 131Treasury Inflation Protected Securities 115EPFR Global 83Paulson & Co. 81Investment Company Institute 66bank reserves 64Bank of Korea 51John Stephenson 28First Asset Investment Management Inc. 26Gill Marcus 25bubble 24Jeffrey Sica 23LPL Financial Corp. 17iShares Gold Trust 16SICA Wealth Management 16Francine Lacqua 14Catherine Raw 10World Gold Council in London 8Anthony Valeri 8South Africa Reserve Bank 6Guy Debelle 5metal accounting 2Robert Keck 2

Free Newsletter Modern Trader Follow

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