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Five Percent In Gold Makes Sense As Volatility Rises - BlackRock

Kitco News

(Kitco News) - The world’s largest investment firm thinks that holding even a little bit of gold will help to smooth out growing volatility in financial markets.

In an interview Tuesday with Bloomberg New, Russ Koesterich, head of asset allocation for BlackRock Inc.’s global allocation team said the fund increased its holding in gold in recent weeks as volatility has picked up. The investment firm currently manages more than $6 trillion in total assets.

“Our gold position is around 5%. I think that is about right for the fund,” he said.

Koesterich, came as gold prices saw their worst one-day selloff since December 2016. The market was driven lower because of the U.S. dollar bouncing off a three-year low and technical profit taking after gold saw nearly 3% gains the previous week. April gold futures continue to hover near its recent lows, last trading at $1,332 an ounce, relatively unchanged on the day.

Koesterich explained that he sees gold as a hedge against volatility risk. He added that he expects the rise in volatility to be a permanent fixture in markets. He said that volatility is rising because of the growing threat of more aggressive Federal Reserve monetary policy tightening because of rising inflation.

“I think the most important thing about gold is it is a risk mitigant,” he said. “If part of what you want to do is have a portfolio that can dampen that volatility, create a smoother ride, then I think having a moderate amount of gold helps.”

In its latest monthly report, Blackrock said that it is relatively neutral on gold as analysts expect prices to remain range-bound through 2018. While the global economy continues to expand -- reducing gold’s safe-haven appeal -- the firm believes that there is still a strong argument to hold the yellow metal in an environment of overvalued equity markets.

“We feel investment demand will continue to be the main driver of the gold price and this will be influenced by the level of financial market uncertainty,’ the analysts said in the report. “For gold to break out of the top of its current range we feel it is likely that broader equity markets would need to pull back or inflation expectations would need to materially increase.”

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