National Bank Turns Bearish on Gold


". . .Montreal-based economist said gold has lost its luster."

For the past four years, National Bank recommended overweighting gold.

On Monday, with the precious metal once again testing $1,000 (U.S.) an ounce, National Bank economist Matthieu Arseneau announced that bullish view has changed.

The Montreal-based economist said gold has lost its luster. National Bank sees bullion prices retreating in coming months, and predicts investors can find better returns in other asset classes.

"In our opinion, all the factors that contributed to the recent upswing in the price of gold are set to reverse," said Mr. Arseneau in a report. He then ran off a list of reasons why gold has peaked:
  • Risk premiums are falling at breakneck speed and still have room to contract.
  • When it comes to inflation fears, "we are of a mind that the Federal Reserve and its counterparts around the world will not hesitate to tighten monetary policy if inflationary pressures mount."
  • On his argument that gold will soar as the U.S. dollar weakens, National Bank said "despite the structural challenges facing the U.S. economy, the greenback could be poised to rebound on the strength of cyclical forces if the Federal Reserve is forced to hike rates sooner than expected."
  • "If the past 30 years are any indication, gold does not constitute an attractive investment over the long term," Mr. Arseneau said. "Moreover, in times of economic recovery, the return on gold falls well short of the return on the stock market."

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