“A bit like insurance, which is often a grudge purchase for many, some investors may balk at the current levels,” Deutsche Bank said. “We would, however, argue that given the plethora of negative deposit rates globally, the holding cost of gold is now negligible in many jurisdictions, and therefore gold deserves to be trading at elevated levels versus many other assets.”
Some may argue against investing in a zero-yielding assets like gold. However, with foreign central banks cutting interest rates into negative territory, there is less advantage in holding cash, according to the bank. Furthermore, Deutsche Bank believes the Federal Reserve will hold off on further interest rate hikes, which should help keep a lid on the U.S. dollar and support elevated gold prices.
Looking ahead, Deutsche also advises investors to be tactical as gold prices have rallied and have historically been stronger in the first quarter but could experience seasonal weakness later on, which may leave a buying opportunity in the second and third quarter.
Max Chen contributed to this article.