Beyond the hawkish peak, gold becomes interesting again
The equity risk premium over bond yields remains unattractive at 3.4%. Earnings expectations are also still too high. For example, listed Swiss companies are expected to post average earnings increases of 15% in 2023. Inflation expectations are also too optimistic: the US annual rate is expected to fall below 2.3%. That calls for caution! In gold, on the other hand, we are now overweight.
Text: Stefano Zoffoli
Even though central banks have reduced their rate hike (you could almost assume a coordinated plan of action!) from 75 basis points to 50 basis points and inflation rates have fallen more sharply than anticipated, investors’ euphoria has actually been somewhat premature. This comes as a result of both the FED and the ECB not yet having reached the end of their respective interest rate hike cycle. Investors have been forced to admit that imminent cuts in interest rates are unlikely. As we had feared, global equity markets have consequently failed to reach the 200-day average while bond yields increased yet again.
- Key interest rates of 5% in the USA have been priced in and the USD is weakening.
- January is the strongest month of the season for gold and venturers' positioning is still low, all the while investor demand is also in a bottoming out.
- The gold price is currently fluctuating around the crucial USD 1,800 mark, an increase seems likely and we are going all out and aiming for the USD 1,900 mark.
- We hit the all-time low of the US interest rate curve (30y-2y) with the sale of our very long-term US government bonds on 9 December 2022.
- We are once again reducing our overweight in government bonds and therefore remain underweight in bonds.
- The momentum for bonds has lost ground and it is likely to get a lot worse, especially for European bonds.
We are still holding back on our trade ideas for the new year for reasons of timing.
- Reduction in Swiss shares: high valuation (P/E of 18), overly optimistic earnings expectations (+15%) and adverse earnings revisions of -7.6% in the past 6 months
- Energy shares are taking profits: the spread between oil price and energy companies' prices has widened excessively. US shale production is also at an all-time high.
- Real estate has returned to neutral: the very strong seasonality of listed real estate funds will come to a standstill in mid-January; interest rates have increased yet again.
Asset Allocation January 2023
