Gold offers wealth protection not generation

Here is what Francisco Blanch, head of commodities and derivatives research at Bank of America Securities, said in a recent interview on CNBC.

Gold is both overbought but also under-owned. And this means that you probably still want to own it in the long run. And that's why we've revised in the last couple weeks—we revised our forecast by about a thousand dollars an ounce to 5,000. We've been bullish gold throughout. We had a 4,000 target. It just happened a lot faster than we anticipated.

The other thing that I would say about the gold market is that the extraordinary volatility we've seen on the way up, coupled with the declining volatility on the way down, makes us think that the market is, as I said, a little overbought right now, a little frothy. And we've seen massive inflows in the past few weeks. So that's really what's triggered this last run-up in August, September, and early October. It feels a little more retail-ish, to be honest.

And again, there's fundamentals on gold. There's a big story of the fracture that we see in global geopolitics between the US and China. The new sanctions that have been applied to Russia this week, and of course there is a constant search by central banks for alternatives to US dollar and euro-denominated assets. So that's been supportive of gold, but we think this market's a little overbought and it's going to be consolidating at these levels, maybe a little lower.

And again, there's fundamentals on gold. There's a big story of the fracture that we see in global geopolitics between the US and China. The new sanctions that have been applied to Russia this week, and of course there is a constant search by central banks for alternatives to US dollar and euro-denominated assets. So that's been supportive of gold, but we think this market's a little overbought and it's going to be consolidating at these levels, maybe a little lower.

On why one should be including gold in a portfolio, Francisco replied: Look, gold makes a lot of sense in a portfolio. So, I think that's the first thing I would say, but also I don't think it makes a lot of sense to try to chase gold prices higher. Remember, we've had a lot of volatility in a few corners of the market. We've had volatility in a number of equity markets—in particular, we've had volatility in miners. We had volatility in nuclear stocks and so on. And perhaps also some of the AI stocks. And what's going on in the gold market is somewhat similar. We've seen silver also joining that rally.

So I wouldn't be necessarily chasing it, but I would be buying dips and trying to establish a more formal core position in gold in a portfolio over time because I do think gold is money. And 50 years ago, 10 ounces of gold bought you a car, and today 10 ounces of gold buy you a car. So that's what you're buying there—you find some asset that over very long periods of time is going to more or less maintain its value. But I wouldn't be necessarily looking for gold to generate wealth for you. It's more of a protection against what may come.