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Gold Is Starting To Look Interesting To BlackRock's Koesterich

Kitco News

(Kitco News) - While gold struggles to find momentum near last week’s 12-month low, one fund manager is now saying that the precious metal is “starting to look interesting.”

Russ Koesterich, Chief investment strategist and head of model portfolio & solutions business for Blackrock

In a commentary Tuesday, Russ Koesterich, chief investment strategist and head of model portfolio & solutions business for Blackrock, said that according to two metrics, the gold market is looking “cheap.”

The first metric Koesterich looks at is M2 money supply. He added that historically, gold and U.S. money supply have had 1:1 correlation. Koesterich added that traditionally, when gold is 25% below its long-term equilibrium with the money supply, the yellow metal has rallied 12% within a 12-month period.

“Today, gold is trading at a ratio of 0.73, i.e., 27% below the equilibrium level. This is the lowest point since late 2016,” he said.

The second factor, which is also related to money supply, Koesterich is watching is inflation, which rose to its highest level in six years last month.

“U.S. inflation is still low by historical levels, but at 2.9%, U.S. headline inflation is at its highest level since 2012. This supports the notion that gold looks relatively cheap. Based on this relationship, gold is approximately 10% undervalued,” he said.

While Koesterich is starting to see some potential for the precious-metals market, he warned that gold isn’t out of the woods yet and will still be at the mercy of the U.S. dollar, which is currently trading near a one-year high.

“That said, based on this metric, gold is trading at the cheapest levels since the dollar last peaked in late 2016,” he said.

Koesterich comments come as gold prices are starting to attract some bargain hunters to the marketplace after falling to a one-year low last week. However while many analysts are starting to acknowledge gold’s oversold status, many say that the yellow metal has a lot more work to do to attract investors back to the marketplace.

For many analysts, gold’s first hurdle is initial resistance at $1,236, but the big line in the sand is at $1,250 an ounce.

August gold futures last traded at $1.228.60 an ounce, up 0.24% on the day. A 10% rally from current prices would push gold back to $1,350 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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