Gold Is Behaving Exactly 'As Advertised' - BlackRock
(Kitco News) - Gold investors should not be disappointed this year, as the yellow metal is doing exactly what it is supposed to, which is to serve as a portfolio hedge, said BlackRock’s investment strategist.
“Gold as a portfolio hedge and as hedge in terms of signs of stress is doing exactly as advertised. It's delivering that diversification benefit, and it has done that, especially through the volatility over the last couple of weeks,” Tushar Yadava, investment strategist for U.S. iShares at BlackRock, told AP.
Yadava pointed out that despite gold following all the trading rules, there was one thing that surmised him.
“When you're in an environment where equities sold off, in part, because of a shock to real rates or interest rates or the inflation outlook as a whole, typically that's not the best environment for gold overall. But it's working as a great diversification benefit at the moment,” he noted.
The inevitable rate increases this year could impact gold in a negative way, but the yellow metal’s long-term purpose in a portfolio will not be affected, Yadava added.
“[Gold] is purely a stored value over time, so it is susceptible to inflationary trends and it is susceptible to when real rates are rising, maybe losing some of its relative attractiveness … It might not be the best relative holding over that period of time,” he said.
The investment strategist pointed out that inflation is looking to make a comeback and the economy is expected to grow in 2018, but noted that gold has a role to play in this scenario as well.
“With all these factors as you're weighing them, gold is the hedge, it is the strategic holding to be a diversifier in your portfolio. And we are not viewing gold as some sort of tactical asset allocation bet. I would say, if you have this tactical view of gold, you probably have a darker view on the world,” Yadava said.
Another purpose of owning gold is having a safety net when geopolitical risks are on the rise, the strategist added.
Gold prices managed to sustain their early morning gains on Monday, with April Comex gold futures finishing the North American trading session up 0.35% on the day at $1,335.
Monday’s gold rally was held back by some strength in the U.S. dollar as well as equities, said Kitco’s senior technical analyst Jim Wyckoff.
“A rebound in the U.S. dollar index from its overnight lows as the U.S. trading session progressed helped to limit buying interest in the precious metals. Also, big rallies in the U.S. stock indexes that have now taken back all of their February losses were a negative for the safe-haven metals markets today.”
The big event the markets are waiting for this week is the start of the new Federal Reserve Chairman Jerome Powell’s testimony in front of Congress on Tuesday.
“Market watchers will parse Powell’s words for clues on the future direction and timing of U.S. monetary policy moves,” Wyckoff said.