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There is still a case to hold gold as a strategic asset - Aberdeen Standard Investments

Kitco News

(Kitco News) - Speculative interest in gold may have run its course, but investors shouldn’t completely disregard the precious metal even as record equity markets hog all the limelight, according to one market expert.

Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, said in a telephone interview with Kitco News that although investors are taking some profits in gold after the summer’s unprecedented rally, there is still a case for gold as part of a strategic allocation within a portfolio.

Dunn added that he sees a solid floor in gold with prices hovering between $1,450 and $1,500 an ounce for the rest of the year.

“Money is flowing back into equity markets, but it’s a really good market that nobody likes,” he said. “Investors are still concerned and desperate to protect their capital.”

The comments come as Aberdeen reported its strongest month of inflows into its suite of exchange-traded products, totaling 149 million. The firm’s gold ETF (NYSE: SGOL) saw inflows of $95 million, representing nearly 64% of inflows last month.

“Although gold continues to shine, we saw broad-based interest in all precious metals,” he said. “However, it appears that the precious metals market has run out of bullish news and we need to wait for new information.”

With gold stuck in a new range, Dunn said that he expects it would take some significantly negative economic news to drive gold prices out of their current range. One risk that Dunn noted that investors should pay more attention to is the budget talks and the threat of another government shutdown. For many analysts, the level of debt is going to critical proportions.

Dunn’s comments come as gold prices struggle to find new momentum after falling roughly 6% from September’s. The gold market has suffered because of improving risk sentiment in the marketplace, which has pushed equity markets to new record highs and has also pushed bond yields up.

In the last few months, the level of negative-yielding debt in the global market place has dropped from records around $19 trillion to around $12 trillion. Dunn said that although negative debt has peaked, the total amount is still incredibly supportive for gold.

In a world that is still dealing with trillions of dollars in negative debt, Dunn said that gold becomes an attractive alternative to fixed income.

“Low bond yields are forcing more and more investors to take more risks and they are going to need something in their portfolios that provides some insurance,” he said. “Adding an allocation to gold does some really interesting things from a performance perspective.”

As to how much gold investors should hold, Dunn said that there is no perfect equation. The only bad number would be zero.

“Because of the bond market and stretched equity valuations, it’s getting harder and harder to argue against holding some gold in your portfolio,” he said.

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.