LONDON Investors have been enticed into gold this month as questions over Federal Reserve policy and the Trump administration drive a bigger than usual January bounce in a beaten-down market.
While gold has averaged a 3 percent rise in January over the past 15 years -- against the 0.7 percent average increase for other months -- investor buying, while tentative, has helped to drive a 4 percent rally so far this month.
Prices slid 10 percent in the six weeks after Donald Trump's election to the U.S. presidency in November, with his pledge to lift spending and cut taxes sparking a surge in cyclical assets such as stocks and industrial commodities.
That trade later unwound on uncertainty over how far that will translate into real growth and whether the Fed will press ahead with expected U.S. interest rate increases this year.
Christopher Mahon, director of asset allocation research in Baring's multi-asset team, which oversees about 2 billion pounds ($2.4 billion) in investments, says his fund raised its allocation to gold from zero to 4 percent since late December, largely through exchange-traded commodities.
"When you start seeing (political) pressure build on central bankers, and the market becoming far less confident that the central bankers have perfect autonomy over their actions, in our view you get a bull market for gold," he said.
Gold owes its stellar performance since the financial crisis to an ultra-low interest rate environment that followed. Prices of non-yielding bullion hit a record $1,920.30 an ounce in 2011.
Its slide from there came largely on predictions that interest rate policy would normalize, though it posted its first annual rise in three years last year, largely on first-quarter gains as expectations of further U.S. rate increases faded.
Investors are still wary of central bank policy.
"Our view is that the year could unfold similarly to 2016, which saw gold rallying strongly as expectations of further interest rate hikes were continuously pushed out," Investec Asset Management portfolio manager Hanre Rossouw said.
Amanda van Dyke, of Peterhouse Asset Management, is also relatively upbeat on gold, which she sees as being in the second year of a bull cycle.
If inflation picks up strongly, real rates will stay low regardless of small Fed hikes, she said, adding that mid-cap and small-cap gold miners are starting to be interesting again.
BlackRock Gold & General Fund co-manager Tom Holl has similar faith in the resilience of gold.
"Gold and gold equities ... have proven their worth as a diversifier and source of portfolio insurance," he said.
Some, however, remain wary of buying too far into a positive trend. Potential headwinds still in play include higher rates, dollar strength and competition from cyclical assets.
JPMorgan's Natural Resources Fund moved its allocation to neutral from underweight gold in late December but is cautious about taking a stronger position on the metal.
"Gold is in a no-man's-land where there isn't a deflationary or an inflationary catalyst, and we are going through a rate-hiking cycle where the Fed will be able to stay on top of inflation," said portfolio manager James Sutton, whose team oversees about $2.25 billion in investments.
"Gold won't collapse, because real interest rates are still low by historic standards, but we have to think about it not in absolute terms but relative to other metals. We see much better opportunities in copper, zinc and nickel."
London & Capital, which eliminated its exposure to gold in mid-2014, has no plans to change that position.
"There are easier stories in terms of natural resources than gold," investment director Ashok Shah said.
(Editing by Veronica Brown and David Goodman)