Now Is The Time To Get Defensive With Commodities And Gold - Alexander Capital
(Kitco News) - Despite recent resiliency in equities, the market is moving closer to a turning point and one quantitative investment strategist says now is the time for investors to get a little defensive and add broad-based commodities to their portfolios, including gold.
In an interview with Kitco News, Scotty George, chief investment strategist at Alexander Capital, said that his firm is currently overweight commodities, which included a small position in gold as the firm gets more defensive in the marketplace.
“Right now our basic material portion is well over 10% of our overall asset allocation,” he said. “We are probably more invested in defensive equities, including gold, than we have been at any time since 2008.”
George said that right now, the firm’s focus is on capital preservation as he sees signs that the equity markets are extremely overvalued. He added that markets are in the midst of a transition and along with the firm’s defensive positioning, it is also holding about 24% of its assets in cash that is waiting to be deployed.
“We are raising more cash as the market peters at the top. We are going to keep our powder dry until we see a capitulation and then we will have sufficient resources to go in and complete our rebalancing,” he said. “We are not at the end of the market top just yet.”
As market sentiment is starting to shift, George said that growing geopolitical risks could be the spark that ignites the next downturn in equities. His comments come as concerns grow over the threat of a global trade war as U.S. President Donald Trump levies tariffs on steel and aluminum from Mexico, Canada and the European Union. All three regions have said they are going to implement tariffs against the U.S. in retaliation.
“One of the things I was taught from a great mentor is that changes in market secular conditions, from bull to bear, don’t usually occur organically, they occur politically. I think what is going to take this market down is either an irrationality or a failure to understand political rhetoric,” he said.
While a downturn in financial markets will also impact commodity markets, George said that he is looking past any near-term weakness. He added that growing demand for raw commodities will ultimately be bullish for the sector.
He noted that not only will commodity markets see growing demand in the years to come, but consumers will also have to deal with dwindling supply of finite resources.
“What’s occurring in the short term is the imposition of the political conversation on the long-term fundamentals of commodities and tangible assets,” he said. “We are trying as best we can to ignore what’s occurring in monetary policy in the Europe Union and what is occurring in fiscal policy in the United States.”
Looking at the gold market, while some investors have been frustrated with gold’s inability to break above $1,400 an ounce, George said that he hasn’t been disappointed at all with the price action. He noted that gold is building a base, which has allowed investors to increase their exposure to the safe-haven asset.
“It’s quite exhilarating to think that we’ve had this much time to accumulate an asset that has so much potential,” he said.
George said that he sees the potential for gold prices to move higher through the long term as global market volatility picks up as investors question the health of the global marketplace. He added that he prefers to hold commodity equities more than the raw commodity.
Currently, gold futures continue to struggle to hold gains above the critical psychological level around $1,300 an ounce. August gold futures last traded at $1,299.10 an ounce, up 0.14% on the day.