17-07-2025
Investors urged to buy gold as price surges
DBS Vickers Securities recommends investors increase their exposure to gold and reduce their allocation of government bonds from developed economies, predicting the bullion price will hit US$3,765 an ounce by the fourth quarter of this year.
Wey Fook Hou, chief investment officer at DBS Bank, noted that the first 100 days of US President Donald Trump's second term sent shockwaves across global markets, especially by escalating a global tariff war.
While these moves aim to reposition the US geopolitically, ongoing policy uncertainty is raising the risk premium on American financial assets. In addition, the recent passage of sweeping tax reforms has intensified worries about the long-term fiscal stability of the US.
According to the Congressional Budget Office, the US federal budget deficit is projected to reach $1.9 trillion this year, with debt levels rising to 118% of GDP by 2035. Moody's downgrade of US sovereign credit to Aa1, with 30-year bond yields exceeding 5%, underscores rising investor anxiety over the sustainability of US fiscal policy.
Trump's "beautiful tariff war" has two main objectives, first to strategically counter China's influence, and also to generate revenue to address mounting national insolvency.
"However, even with an aggressive 20% universal import tariff, the net revenue gain after dynamic economic effects would be just $185.2 billion, insufficient even to cover federal interest payments," Mr Wey noted.
These fiscal constraints have prompted DBS to revise its investment strategy, he said.
For equities, the bank has maintained a neutral stance overall, with expected performance divergence across regions and sectors. Belief in US technology stocks has also stayed intact, with services favoured over goods-based sectors.
Meanwhile DBS suggests investors increase their allocation to European and Asia ex-Japan equities, citing fiscal stimulus, attractive dividend yields, and valuation discounts versus developed markets.
For fixed income, developed market government bonds were downgraded to neutral amid persistent inflation and fiscal strain. DBS favours high-quality credit with A or BBB ratings, and has adopted a "duration barbell" strategy, focusing on those with 2–3 year and 7–10 year maturities, capital securities, and short-duration high-quality debts.
DBS is overweight on alternative assets, especially gold, with a price target of $3,765 an ounce by this year's fourth quarter. The bank also recommends income-generating private equity, including infrastructure, as "a source of resilient returns in a volatile environment".
"Investors tracking fiscal risks are expected to shift further away from US and Japanese assets. As capital diversifies from dollar-denominated holdings, Asian local currency bonds are emerging as beneficiaries," Mr Wey said.
The US dollar is likely to continue weakening, pressured by inconsistent and controversial policies under the Trump administration. As a result, alternative safe-haven currencies are expected to gain favour, added Mr Wey.
Chanpen Sirithanarattanakul, head of research at DBS Vickers Securities (Thailand), expects Thailand's GDP to grow just 1.8% in 2026 if US tariffs are 18%-20%, with a Stock Exchange of Thailand (SET) index estimate of 1,300 points.
However, if tariffs stay elevated at 36%, growth could slow to just 1%, and the SET index target would be adjusted, she said.
Despite macro challenges, selected Thai sectors remain attractive, including hospitals and telecommunications. The baht is projected to appreciate slightly to 32.8 baht against the greenback this year, and to 32 baht to the dollar in 2026.
The brokerage expects Thai interest rates to be cut once or twice this year, with another cut likely in 2026.
"Domestic political developments, especially in August and September, as well as US tariff policy, will have a significant impact on investment sentiment," Ms Chanpen noted.
