BNP Sees Risk of Central Bank `Overreach' With $1,400 Gold

  • Bullion `seems to have recovered its safe-haven status': BNP
  • Gold has risen 18% this year amid global growth concerns

Gold may advance to as much as $1,400 an ounce over the next 12 months, according to BNP Paribas SA, which cited rising investor concern about the efficacy of central banks’ policies to sustain growth.

“There has clearly been an uptick in general investor concern about the eroding effectiveness and potential overreach of global central bank policies,” BNP’s wealth-management arm said in a briefing paper at a conference in Singapore on Thursday. “We expect this concern to remain an important component of the investment landscape in coming quarters.”

Bullion has rallied 20 percent in 2016 amid financial market volatility and investor concern about the outlook for global growth. Central bankers in Europe and Japan have intensified their drive to spur their economies, embracing negative interest rates, and while the Federal Reserve raised borrowing costs late last year, it’s yet to boost them further. The expected range for bullion from BNP over the next year was from $1,150 to $1,400.

“We have been recommending gold as a portfolio hedge," Prashant Bhayani, Singapore-based chief investment officer for Asia at BNP Paribas Wealth Management, said during a presentation. “As a hedge we think it makes sense, especially with the negative-interest-rate world we’re in right now.”

Gold’s Rally

Bullion for immediate delivery gained as much as 2.1 percent to $1,270.38 an ounce, the highest since March 17, and was at $1,269.79 at 2:12 p.m. in London, according to Bloomberg generic pricing. It last traded above $1,400 in September 2013. Holdings in gold-backed exchange-traded products have surged 20 percent this year, according to data tracked by Bloomberg.

The European Central Bank left its interest rates at record lows and kept the size of its bond-buying program unchanged as President Mario Draghi waits to see how fresh stimulus measures announced in March affect the economy. The ECB said “the focus now is on the implementation of the additional non-standard measures” decided last month.

Sweden stepped up its stimulus program on Thursday. While the Riksbank kept its benchmark repo rate at minus 0.5 percent, policy makers said the bank will buy more bonds in the second half in a bid to to drive down longer yields.

Evolution Mining Ltd. Executive Chairman Jake Klein said in February that gold’s rally this year is being driven as investors start to lose faith in central bankers’ ability to deal with challenges. Gold may benefit as central banks run out of policy options to combat inflation or deflation while trying to spur growth, the World Gold Council said in March.

Safe-Haven Status

“Gold seems to have recovered its safe-haven status,” BNP said in the paper, which also included an assessment of China’s economy, the global oil market and emerging-market equities. “Gold can play a portfolio-diversifying role during periods in which faith in U.S. financial assets is being challenged.”.

Central banks have been stepping up their purchases of gold over the past year, with buying seen from China, Russia and Kazakhstan. Demand from central banks and investors may be structurally higher as a result of negative-interest-rate policies, the London-based WGC said in March.

“Central banks have gradually been buying gold,” BNP’s Bhayani said. “Clearly if gold continues to appreciate it’s another currency for central banks to own. That’s another driver of demand.”

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