HSBC halves strategic gold allocation as inflation allure fades

Thu Jan 24, 2013 7:47am EST

Related Topics

* HSBC favours TIPS over gold as inflation hedge

* Cuts gold price forecast in a recession to $1,600/oz

By Clara Denina

LONDON Jan 24 (Reuters) - HSBC halved the allocation of gold in its strategic portfolio in favour of equities and treasury inflation-protected securities (TIPS) to reduce volatility, the bank said in a report, taking a much less favourable view of the metal as an inflation hedge.

The bank cut gold's weight in its 3-year strategic portfolio by 8 percent to 7 percent and by 9 percent to 7 percent in its tactical portfolio.

As the relationship between gold and U.S. inflation has slightly broken down over the past year, HSBC now sees TIPS providing a more reliable hedge against inflationary pressures.

Although economic headwinds remain, with ongoing U.S. debt ceiling negotiations and euro zone growth woes, major tail risks that the global economy faced at the start of 2012 have retreated considerably, it said.

The bank said it no longer views gold as a "sound investment" should the global economy fall back into recession, as this would not now be driven by a major systematic event such as a sovereign default.

"Given the much lower risk of such a disaster taking place, we now forecast that the gold price would fall to $1,600 an ounce in a recession rather than rising to $2,200 (as previously forecast)," it said.

"This change means that we now expect gold to return -3.6 percent in a recession rather than the 32 percent that we forecast back in September," it added.

A Reuters poll published earlier this week showed that gold could see record average highs this year and next, but its 12-year long bull run may be reaching a plateau.

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