There Is Still A Case For Gold, Just At A Lower Exposure - BlackRock
In its latest monthly gold report, analysts at BlackRock warned that they expect gold prices to remain range bound for the next year-and-a-half as the yellow metal faces an uphill battle against a growing global economy.
“We are optimistic on the outlook for global economic growth, which could dampen ‘safe-haven’ interest for gold and act as a headwind,” the analysts said in the report. “However, we see powerful arguments behind allocating to gold today, with geopolitical risk elevated and equity markets near all-time highs.”
The comments come as gold market is attempting to recover after seeing significant selling pressure last week. Friday, gold had its worst one-day performance since May as prices dropped to a six-month low, falling nearly 2%.
Bargain hunting at the start of the new trading week has helped the yellow metal hold critical support above a 2015 trend line. August gold futures settled Monday’s session at $1,280.10 an ounce, relatively flat on the day.
Looking ahead, the firm said that it is watching inflation pressures closely as this will be a significant driver going forward.
“Should inflation rise faster than the US Fed raises rates this year, this would depress real rates and would be a material positive for gold,” they said.
The firm is also watching the U.S. dollar, with the analysts saying it is in a long-term bear market. However, in a commentary published earlier in the month, Russ Koesterich, CFA, portfolio manager and a member of the global allocation team with BlackRock's multi-asset strategies group, said that the U.S. dollar could benefit from short-term momentum as it makes gains against the euro.
“For the first time in years, investors are beginning to question the long-term sustainability of the euro. These fears are probably overblown…” he said. “In an environment of a stronger U.S. economy and resurgent European political risk, the dollar may, at least temporarily, resume its former role as a safe-haven currency. All else equal, a stronger dollar is a headwind for gold. As such, I would reiterate my thinking from last November: Don't abandon gold, but own less than you normally would.”
Euro weakness is helping the U.S. Dollar Index hold near a seven-month high, last trading at 94.78 points.