BCA boosts gold to bullish to hedge against financial crisis By Investing.com
Investing.com — BCA Research upgraded gold to Overweight from Neutral, citing the need to hedge the risk of a possible financial crisis in 2025.
“Gold could benefit from an environment where there are concerns about financial stability in the US,” BCA strategists said in a note on Monday.
Analysts highlighted that although optimism about the US economy has driven commodity prices higher, there is a risk that the bond market may shift from “burning optimism” to fear of a financial crisis.
“To be clear, in our view, such an increase would be temporary, and could sink the economy,” the report noted. BCA draws attention to historical presentations, emphasizing that years like 2024, when long-term yields rose as short-term yields fell, were often followed by strong performance in Treasuries.
“Bonds are also an attractive asset because of the high coupon and the steeply sloping yield curve, which means downside is good,” continued strategists led by Juan Correa. “So, instead of shorting bonds, we think the best way to hedge the risk of a financial crisis is to buy gold.”
The development also reflects political uncertainty surrounding President-elect Trump’s fiscal policies and market constraints that could limit deficit spending.
With long-term rates rising and inflation benchmarking, the BCA warns that the economy may not meet expectations for growth anchored in asset prices. “Markets are also acting as an obstacle to Trump’s plan. US manufacturing will no longer improve with a rising dollar,” the report said.
Fears of inflation and debt consolidation have prompted moderate House Republicans to resist spending the deficit, posing additional challenges to the administration’s plans.
In 2024, US 30-year rates rise as one-year rates fall. According to the BCA, this marks “a very rare event suggesting that the long-term end of the curve was driven by factors outside of monetary policy.” The market reaction has led the Federal Reserve to reconsider its rate-cutting approach.
Adding to the risks of a financial crisis, central bank purchases of foreign currency continue to provide support for gold prices, reinforcing its role as a safe haven. “The resumption of global competitiveness has pushed the share of global funds to gold to its highest level since 1995,” the BCA highlighted.
Overall, the BCA’s shift to a more portfolio protectionist stance reflects broad expectations that economic growth and asset valuations may underperform consensus forecasts in 2025.
