Last week, gold prices once again broke historical records and are stimulating a series of forecasts that gold prices will surpass new record levels. What message does this new record of gold send out about the actions of international investors in the financial market today?

Risk aversion returned and increased gold ownership in the investment portfolio

Gold prices will not be able to increase unless a large amount of money is poured into buying gold. The increase over the old peak of gold prices last week reflects the fact that many investors around the world are increasing their ownership of gold in their investment portfolios.

In the context of economic recovery, which is still happening but somewhat slower and many people are worried about the possibility of a double bottom recession, investors will have to find ways to restructure their investment portfolios. Invest in reducing ownership of higher risk assets such as stocks, while increasing the proportion of safe investment assets to avoid losses if this really happens. In short, risk aversion is returning and people are increasing their gold holdings in their investment portfolios.

Among the safe options for international investors, gold currently appears to be much more attractive than bonds (some bonds are considered safe such as US government bonds with yields close to as 0%). The most attractive feature of gold at this time is that gold is proving to "make money" for investors.

Many views of financial analysts in major trading centers in the US and Europe say that investors are tending to own investments that do not necessarily bring large profits but do not have risks. big loss.

With such investor sentiment, now seems to be the right time for financial advisors and asset managers to encourage their clients to keep a large proportion of gold in their investment portfolios.

Given the current market context, financial advisors have many safe reasons (for their careers) to convince investors to hold gold: many governments are having trouble with public debt, foreign currencies, etc. The main reserve currency has gradually lost its credibility after many governments applied monetary easing (including measures like printing money) in the past year, the risk of a double bottom recession, and intense political conflicts. In some countries...

Besides, technical analysis factors also contributed to supporting gold prices when technical resistance levels were broken and technical indicators showed the upward momentum of gold prices after breaking the 1,250 USD mark. /ounce is quite strong (to date clearly hitting a new high). Currently, many analysts have mentioned the milestones of 1,300, 1,380 and even 1,500 US dollars/ounce in their statements.

Looking at it from the opposite perspective, it is difficult for financial advisors to say "don't keep gold, the price is too high". If a financial advisor doesn't advise clients to hold gold when their competitors do, and if gold continues to appreciate in price, that advisor's career will be threatened.

Even if the consultant tries to appear independent of the majority and advises against holding gold, his client can say “the consultant in the office across the street told me to hold gold, I see The press also published a lot of bad news, so I think I should keep my gold", at this point the consultant is at risk of losing customers to competitors.

Not all consultants like to "outperform" the rest of their colleagues in an unclear context like today, so many of them will choose to act like the majority of other colleagues by consulting. Customers should increase gold holdings in their investment portfolios. If they make a mistake, it will be considered a common mistake by the majority and easily forgiven in the "who would have thought..." way.

This situation of following the majority is a common phenomenon on Wall Street. Reuters published an article criticizing this behavior that they call "group-think disease". of the majority"). However, in today's risky conditions, thinking like the majority is probably a safe consulting strategy.

The current way of thinking of the majority is the result of the fear of a double bottom recession, like many people scrambling to get on a high-speed train where gold prices are predicted to plunge to $1,300. US/ounce or better yet, they avoid being stuck on the stock train that is suspected of returning to old bottoms.

Among those climbing on this train are large investors, large investment funds, large asset management companies and central banks. This temporarily creates a "self-fulfilling prophecy" effect, meaning that everyone predicts that the price of gold will still increase (because of listening to expert advice, because of such self-prediction... ) then rushed together to buy and make the price of gold really increase.

Invest in gold: don't have to buy it at all costs

Gold's technical uptrend and current fundamentals show that it is difficult to resist the ongoing gold price rally and analysts will not quickly turn 180 degrees to say that gold will fall again. to under 1,000 USD in just a few days. But remember, a few months ago there were still many predictions that gold would return to $800 or lower this year.

Market factors change rapidly and so do gold investors in the international market. As a simple example, if only a few major stock indexes form a strong uptrend and Asian markets "respond" enthusiastically in the next few weeks, people will quickly say that "greed is on the rise." return", investors will return to risky assets and create a trend of selling gold to buy new stocks.

Therefore, it can be seen that in the context of many countries with major reserve currencies such as the UK, US, Japan, the euro bloc is having trouble with its public financial policies and monetary easing, gold ownership in your investment portfolio and savings will make more sense.

But if you buy gold at all costs just because people say "gold will go up again", you need to be careful. Just because you are afraid of being late, buying gold when the price is high despite all the risks will unfortunately bring "the risk of latecomers". When large investment funds buy gold, it will create the effect of driving gold prices up sharply.

But if they take profits or change their portfolio structure to hold more stocks and sell less gold, it will create unexpectedly rapid price drops. Importantly, it is difficult to know when market sentiment will change and when large investors will sell gold.

Therefore, if you want to buy gold as a tool to store assets to prevent high inflation and currency devaluation, why not patiently wait to buy when the gold price drops to a low level? Experience shows that after many breakouts from record high prices in recent years, gold prices often have downward corrections and create many better buying opportunities.

According to Ho Quoc Tuan
TBKTSG