March 3, 2011 / 5:21 PM / in 8 years

FUNDVIEW-HSBC sees gold as risk trade; bypasses "hot" silver

* Gold still a “risk-on” trade

* Silver could rally further but too pricey for now

By Amanda Cooper

LONDON, March 3 (Reuters) - The financial and geopolitical backdrop has not deteriorated enough for gold to show off its safe-haven credentials and it remains firmly a risk trade, while the chance to get into silver may have passed, says HSBC.

Charlie Morris, head of absolute return at HSBC Global Asset Management, recently cut his exposure to gold.

The firm has taken a defensive view of the world and believes bullion is not the best way to profit from that stance, even though though HSBC Global Asset Management is bullish overall towards gold.

Instead, he believes big-brand equities such as Wal-Mart (WMT.N) or Coca-Cola (KO.N) offer better protection against the risks facing the global economy now.

“We’re at a crossroads and it’s a very complex time because on the one hand, you want to protect yourself against inflation, but those trades are extremely overcooked,” he said.

“We love the stuff and we think it’s the number one trade of the decade. There might be other things that go up faster, maybe it’s food, maybe it’s oil,” he said.

“It has outperformed bear markets but it is a risk-on trade and I think something needs to change before it becomes the ‘flight-to-quality in a crisis’ and I don’t think we’re at that point yet,” he said.

HSBC Global Asset Management’s Absolute Return Service has about $2 billion under management.

Gold XAU= hit a record $1,440.10 an ounce on Wednesday having rallied by 10 percent since the outbreak of uprisings that have swept the Arab world since late January triggered a fresh wave of safe-haven buying.


The gold price came under pressure in the early weeks of the year after investors grew more confident about the prospects for economic recovery, robust corporate profits and rising interest rates to prevent inflation from undermining growth.

While silver is decidedly a hot trade, its stellar performance against gold, with its ascent to 31-year highs, might mean it is simply too hot to handle.

“I feel we ought to have some money in silver, but you add it together and think about the risk-off thesis and we wouldn’t want to do it at this moment in time,” he said.

“Not to say I think it’s coming down, but I think we’ve missed it. Buying something overbought and chasing it is rarely a good strategy.”

Silver XAG=, which rose by about 80 percent in 2010, making it one of the top performing financial assets, is set for another 12 percent gain so far this year and is staging its strongest performance versus gold in 13 years.

The most recent data on U.S. silver future holdings shows speculators have more exposure than they have done in four months, compared to speculative holdings of gold futures, which have risen but only to three-week highs.

Meanwhile, another gauge of investor appetite for silver, flows of metal into exchange-traded products, have registered a net increase over the last month across the major ETPs. This compares with a net decline for gold, in spite of the latter’s safe-haven status.

But silver is also notoriously volatile. Last year, it swung from losses of 13 percent to gains of 83 percent, compared with the gold market’s gyrations between losses of 5 percent and gains of 31 percent.

“The higher the quality of your portfolio, the more you can walk away from it,” Morris said. “If you’re into things like silver then you have to micromanage.”

“It’s a racy little number, it’s a speedboat, but it’s not a trade you can walk away from.” (Editing by Anthony Barker)

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