"Be Wary of Bonds, Favor Gold Bullion", Says Rothschild Strategist

INVESTORS WORRIED about inflation should avoid bonds in favor of "real assets" like Gold Bullion, according to a strategist at a well-known private banking firm.

"The growing risk of inflation and the prospect of much weaker currencies have major implications for investment strategy," said Dirk Wiedmann, head of investments at Rothschild Private Banking & Trusts, quoted in the Financial Times.

"Our approach to these threats can be summarized under four main headings: favor real assets, such as commodities, gold, property and equities; be wary of bonds."

Wiedmann believes that bonds such as US Treasuries are currently overvalued, and that investors holding them should look to diversify.

"The benign economic conditions of the past 20 years have led to an overvaluation of bonds that is now beginning to unwind," he said. 

Bill Gross, head of the world's biggest bond fund manager, Pacific Investment Management Co. (PIMCO), has taken a net short position on US Treasuries worth 3% of PIMCO's $236 billion Total Return Fund.

"Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates," said Gross in his monthly investment outlook.

The move follows that of John Stopford, London-based head of fixed income at Investec Asset Management, who took a short position in US Treasuries last month.

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