Good as gold? Why it might be a safer haven than Treasury bonds

Gold's role in portfolios is gaining attention, with Bank of America suggesting it could rival US Treasury bonds as a go-to safe haven investment.

The analysis from BofA titled “Is gold a safer investment than Treasuries?” comes amid a remarkable rise in gold prices, which have climbed more than 30 percent this year, reported Barron's.

On Friday, gold reached a record high of $2,700 an ounce, fueled by an alchemical brew of factors including declining interest rates, increased central bank purchases, and a recent surge in interest from retail investors. That last part has been expressed through the gold bar buying at retailers like Costco, alongside increased activity in gold ETFs.

The BofA analysis, authored by commodity strategist Michael Widmer, says rising US debt levels could be adding to gold's shine. The US is not the only net borrower among the countries of the world, but with its national debt now exceeding 120 percent of gross domestic product, investors may begin to question the security of Treasury bonds.

Widmer suggests that “with lingering concerns over U.S. funding needs and their impact on the U.S. Treasury market, the yellow metal may become the ultimate perceived safe haven asset.” With that in mind, Bank of America has maintained a bullish $3,000 price target for gold.

The upcoming US presidential election is another factor in the mix, with neither candidate's platform showing any major measures to address debt. According to the Committee for a Responsible Federal Budget, former President Trump’s tax policies could add approximately $7.5 trillion to the national debt, in contrast to Vice President Harris’s proposals that, while more fiscally modest, are still expected to add about $3.5 trillion.

Beyond domestic politics, Widmer expects larger spending commitments across the world "as countries adapt to and tackle climate change, demographics become more challenging and defense spending likely goes up too."

Of course, not everyone's a gold bug. While the commodity does have its place in a diversified portfolio, and the much-anticipated arrival of Federal Reserve rate cuts certainly adds to its appeal, the decision to invest should also be driven by returns, which US stocks have certainly delivered in spades so far in 2024.

"For most of the last five years, gold was pretty much dead money. Investing in the S&P 500 has given you far greater returns," Scott Bishop, partner at Presidio Wealth Partners told InvestmentNews in a recent interview. "Instead of buying gold, and it admittedly has been a good ‘trade’ and has had a good recent run, we have used other investments in our portfolio to play into these themes.”