Gold may have surged to new highs in recent days but this traditional port in an investment storm could still provide some shelter along with other select assets, according to
HSBC Private Bank.

The yellow metal is up by 22 per cent this year, or the eleventh straight annual rise (source: Bloomberg), which is the longest such sustained period of increase since 1920 in the London market (just two years after the end of the First World War). The gold price has backed slightly off its high of $1,815 per ounce in recent days as equities have recovered some lustre.

Nevertheless, gold is still, in inflation-adjusted terms, not in uncharted territory and could have more room on the upside, said Willem Sels, UK head of investment strategy at the private bank.

“We have been constructive on the outlook for the gold price for quite some time but still feel that it should continue to be included in an investment portfolio notwithstanding its recent surge,” he said.

“Although the price of gold has surged, especially so since the sovereign debt crisis began, it remains below its previous peaks when adjusted for inflation.  The reasons for this strong performance are well documented – it is perceived to be the best store of value in the event of a currency crisis. European sovereign debt worries and suspicions around an inflation-led depreciation of the US dollar aren’t likely to evaporate soon, suggesting that these supporting factors are likely to remain,” he continued.

“One further factor that should support the price of gold in the coming months is that the ‘cost-of-carry’ for the commodity is likely to remain negligible for the foreseeable future. As an asset that doesn’t have a yield, the cost of holding gold relative to cash, is usually negative. However, as we highlighted above, interest rates in the US are likely to remain extremely low, which means that the cost-of-carry on non-yielding assets like gold isn’t likely to be an impediment to owning it,” he said.

Safe haven assets should also include high quality corporate credit, equities paying high dividends and currencies such as the Canadian dollar – strongly assisted by Canada’s commodity boom – and the Norwegian kronor, said Sels. The Swiss franc and Japanese yen are both popular choices of currency but authorities in these countries are trying to depress them to help ease pain on exporters, he said.