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Don't Ignore Gold’s Safe-Haven Status - BlackRock's Holl

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(Kitco News) - Although the gold market is struggling to attract investor attention as capital continues to flow into equity markets, one portfolio manager for the world’s biggest asset-management firm warned that sentiment can still shift the other way.

“Investors should focus on the fact that during October, during December, when you saw these big drawdowns in risk assets, gold proved its safe-haven status and rallied despite the strength in the U.S. dollar,” said Thomas Holl, director, portfolio manager and member of BlackRock’s Natural Resource team, in an interview with Bloomberg Tuesday.

The comments come as gold has been unable to push above growing resistance at the critical psychological level at $1,300 an ounce. June gold futures last traded at $1,293.90 an ounce, down 0.12% on the day.

Gold prices have struggled lately as equity markets push ever close to record levels. The S&P 500 last traded at 2,883 points, 2% off of last year’s record highs.

However, Holl added that gold has actually done very well considering where prices have come from, rallying from below $1,200 an ounce in August to testing long-term resistance just below $1,350.

“As an investor with a diversified portfolio, you would have been very pleased with the way gold performed during the fourth quarter,” he said.

Holl said investors should pay less attention to gold’s short-term volatility and instead focus on its long-term potential, particularly after the Federal Reserve signaled a strong dovish shift in its monetary policy.

“The pivot we’ve seen from the Fed will be really important in thinking of how gold behaves over the next three, six, 12 months,” he said.

Although some analysts have said that gold will struggle in a weak inflation environment, Holl said that it’s actually a less important factor than what real interest rates are doing. The U.S. has seen a sharp drop in U.S. real interest rates after the Fed signaled that it does not expect to raise interest rates at all this year. The real interest rate for 10-year yields is currently at 58 basis points, down from 96 basis points at the start of the year.

“Gold typically does well when real interest rates are below 1.5% and especially well when they do negative,” he said.

“Whilst our base-case on our resource team for the moment would be for one of quite a benign global growth outlook, if there are any external shocks to that… then I think gold would be well positioned to rally as people will seek it out for its safe-haven status,” he said.

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