Bank of America Merrill Lynch also warned that investors could be trapped in a transition period before the Fed starts normalizing its monetary policy, reports Julie Verhage for Bloomberg. Consequently, the bank argues that investors should hold gold to hedge against volatility ahead.
“Until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes,” Bank of America Merrill Lync said in a note. “For this reason we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015. Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed.”
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Full disclosure: Tom Lydon’s clients own shares of GLD.