By Dylan Lobo
The world’s largest hedge fund has told investors to buy gold as tensions between the US and North Korea mount.
Equities have sold off this week as US president Donald Trump escalated his rhetorical war on North Korea, threatening to unleash ‘fire and fury’.
Even as senior members of his administration attempted to cool the dispute he resumed his rhetoric last night, saying the earlier threat ‘wasn’t tough enough’.
The triggered a further sell-off on Wall Street overnight, with the S&P 500 losing 1.45% of its value. At 10.20am in London the FTSE 100 had lost 1.2%, falling to 7,300.
Against this backdrop gold has jumped to a two-month high of $1,286.07 an ounce, up 12.3% so far this year. Trading volumes have also been high, with 23 million ounces changing hands in the morning session on Wall Street yesterday.
Hedge fund Bridgewater Associates, which runs $160 billion (£123 billion), has advised clients to join the buying spree as political uncertainty mounts.
Bridgewater founder Ray Dalio said in a LinkedIn blog post that ‘prospective risks are now rising and do not appear appropriately priced in… the emerging risks appear more political than economic, which makes them especially challenging to price in.’
He recommended a 5-10% portfolio allocation to gold.
‘We can [also] say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit,’ Dalio wrote.
‘Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you sharing it with us).’
Trading platfom The Pure Gold Company (PGC) saw sales increase by 125% on Wednesday.
PGC CEO Josh Saul said around 65% of gold purchase came from financial services professionals concerned that global equities will be hit if relations between the US and North Korea deteriorate further.
‘We saw a 64% increase in people purchasing physical gold for the first time citing the breakdown of international relations.
‘Many fear that as allies, the UK [is] also susceptible to being dragged into an unnecessary and unwanted conflict,’ Saul said.
‘We see many of our new enquiries and clients using the opportunity to protect themselves against an uncertain future, especially given the unpredictability of both President Trump and Kim Jong-Un.’
Saul also highlighted a 72% increase in people swapping exposure to gold equities within their Sipp and pension for physical gold.
‘Clients who are within a few years of their retirement are concerned that their pension could lose considerable value because of the threat of war and conflict, Saul said.
‘Pensioners don’t have the luxury of time to wait for their stocks to rebound after a potential equity crash and so the general sentiment is that many would rather convert their gains in the stock market to take advantage of gold investment which is still 20% lower than its peak of 2012.’
In a recent research note UBS said it remained unclear if the uptick in interest was sustainable beyond the immediate risk aversion, however.
‘Gold’s negative correlation with equities makes it an attractive hedge as there’s likely to be growing unease as equities continue to make new highs, yet until concerns over equity positions gain momentum there’s unlikely to be a rush towards gold,’ the investment bank said.
‘Additionally, there’s also an overall hesitation to get more involved in the
gold market and therefore aggressively chase the market higher given normalisation at the Fed and the ECB.’