Wealth managers want to wean investors off gold

A shopkeeper shows gold bars after buying them from a customer in Bangkok's Chinatown October 14, 2010.

NEW YORK (Reuters) - After a year of record demand, gold is getting tepid reviews from top U.S. wealth managers who say it is no longer the safe haven it was at the peak of the financial crisis.

As investors soured on stocks and bonds and worried that government stimulus spending would fuel inflation, they queued in scores to stock up on gold. Whether physical bullion or derivatives, gold was deemed safe and the closest alternative to sticking cash under the mattress.

Money managers to the rich, though, warned that by now there is tremendous risks lurking behind gold's shine.

"That play has already passed by," said Lawrence Hughes, chief executive of BNY Mellon Wealth Management, speaking at the Reuters Wealth Management Summit on Wednesday.

Investors "need to be careful not to do what people do in line at the grocery store: always jump to the fastest-moving line or, in this case, to the hot-performing category," he said.

As the economy recovers, financial advisers are weaning the rich from their gold and other low-return assets in favor of higher-yielding investments, to "get the money from under the mattress and working again," said Robert McCann, chief executive of UBS Wealth Management Americas.

Gold prices started slipping in the past month after almost doubling since October 2008. Last month, prices for both spot gold and gold futures for December delivery on the Comex exchange reached all-time highs. Spot gold peaked at $1,387 an ounce in mid-October.

Many investors have heavily invested in gold to hedge against the risk of inflation, but executives said the market does not warrant gold's value.

"Gold has flown up in price," said Gordon Fowler, chief executive and chief investment officer for Glenmede, a Philadelphia-based wealth manager for the very wealthy.

"Inflation would have to go up 90 percent in this country for those two numbers to get back in line," he said.

Now that many central banks have stopped selling and started buying gold, soaring demand in Europe, Turkey and India has been driving the gold rush. That has sparked worries that a gold bubble is forming.

Financial executives told the summit that their rich clients have not gone overboard with gold purchases, but they keep investing in the precious metal to protect themselves from inflation, market tumbles and swings in the dollar.

"There's an interesting dynamic in gold. It's a different kind of commodity ... Gold is a store of wealth," UBS' McCann said, putting his target valuation at $1,500 an ounce.

Many financial advisers are still offering gold as an investment option, not in pursuit of returns but as a way to diversify.

"Within a properly diversified portfolio with precious metals, there is a place for gold," said George Lewis, head of Royal Bank of Canada's wealth and asset management.

(Reporting by Alina Selyukh. Editing by Robert MacMillan)