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Is Gold Losing Its Safe-Haven Luster? Mohamed El-Erian Thinks So

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(Kitco News) - Gold’s recent surge above $1,300 was a subdued reaction to geopolitical tensions, this according to one famed economic pundit, who says the metal’s safe-haven status may be in question.

The yellow metal should have risen much further than it actually did on Tuesday when North Korea launched another missile overnight, Mohamed El-Erian, chief economic adviser at Allianz SE, wrote in a Bloomberg post.

“The responsiveness of gold, as well as the overall price, appears weaker than would have been expected from historically based models -- and for understandable reasons,” El-Erian said.

Gold managed to hit its 2017 high on Tuesday on increased geopolitical tensions, trading near levels last seen right after the U.S. election. Prices have since cooled off, with December Comex gold last trading at $1,312.20 an ounce.

And the former PIMCO chief blamed central banks and cryptocurrencies for the metal’s weaker-than-expected performance.

“The precious metal’s status as a haven has been eroded by the influence of unconventional monetary policy and the growth of markets for cryptocurrencies,” he wrote.

The economic advisor explained that “unconventional” policies implemented by central banks around the world have “helped meaningfully decouple asset prices from underlying fundamentals.”

On the flip side, increased interest in cryptocurrencies is taking away potential buyers from the precious metals market, he added.

Yet, El-Erian is not giving up on gold, noting that it still plays a key role as a portfolio diversifier and its subdued price action could be just temporary.

“The message for investors in both gold and multi-asset-class portfolios is clear,” he said.

“While continuing to play a role in diversified market exposures, gold is less of a risk mitigator and asset-class diversifier, for now . . . But this is not to say that gold’s traditional role will not be re-established down the road. After all, central banks are in the later stages of reliance on unconventional monetary measures and, given this year’s spectacular price appreciation, cryptocurrencies are more vulnerable to unsettling air pockets.”

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