Gold bars and coins (Photo: Shutterstock)

The S&P 500 has almost fully recovered all its pandemic-fueled losses from earlier this year and U.S. Treasuries have seen yields fall across the yield curve, which increases prices, but neither asset class comes close to the performance of gold.

The precious metal and traditional inflation hedge has climbed to a record high in price, topping $1,950 an ounce in the spot market on Monday morning. Michael Hartnett, chief investment strategist for Bank of America Global Research, reports that year to date through July 22, gold prices have surged 22.5% compared to about 6% in government and investment-grade bonds and a 0.2% decline in global equities. 

His latest “Flow Show” report shows weekly flows of $3.8 billion into gold, the second largest ever for the yellow metal. The firm’s “all-weather” portfolio consisting of equal quarterly splits between stocks, bonds, cash and gold rose 18% in the past 90 days, which is “astounding and abnormal” given its 7% historical annual average increase, writes Hartnett.

Gold is “marching toward $2,000 an ounce” between the end of September and end of December, writes UBS Chief Investment Officer Mark Haefele, in his latest investment note, which revises a previous $1,900 per ounce target. 

Underpinning gold’s price gains, according to Haefele, are its“negative correlation to real interest rates and the dollar,” which have fallen; rising geopolitical tensions, especially between the U.S. and China; and limited supply growth due to restrained capital spending by mining companies.

Haefele expects all these supportive factors will continue, pushing prices higher. Even if Trump fails to win reelection, Haefele doesn’t expect U.S.-China tensions will ease. “The broad strategy to contain China looks set to continue.”

UBS has added gold to its “most preferred asset list” in its global asset allocation. “In a portfolio context, adding gold offers diversification benefits alongside providing shelter from volatility,” writes Haefele.

Renowned global investor Mark Mobius agrees with Haefele. He told Bloomberg TV recently that he “would be buying gold now and [would] continue to buy.”

Asked why gold continues to rally when inflation expectations remain low, Mobius explained that near-zero interest rates make “gold an attractive medium to have” because investors don’t have to worry about a competitive investment that pays interest and because gold prices will rise as uncertainty in markets rises. Declining mine output will support higher prices, according to Mobius.

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