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Gold is an important tool for a resilient portfolio - BlackRock

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(Kitco News) - Gold will be an important tool in an investment portfolio as uncertainty continues to dominate financial markets that continue to feel the effects of the COVID-19 pandemic, according to the world’s biggest asset management firm.

In a recent report, Wei Li, iShares EMEA head of investment strategy at BlackRock, said that gold is an attractive asset as uncertainty and volatility remain dominant themes for investors. She added that gold will be an attractive diversifier as it has a low correlation to equities.

“We believe the diversification benefits could increase the longer gold is held within portfolios: over a five-year period, gold’s correlation to global equities averages near zero,” she said.

At the time of the report, gold prices were up more 15% since the start of the year; meanwhile, global equity markets are down nearly 15%.

The comments come as gold prices push to their highest level in nearly eight years but remain caught in the broader trading range. August gold futures last traded at $1,776.60 an ounce, down 0.3% on the day.

“As markets remain volatile and economic growth uncertain, we see gold in demand for the short term as a source of portfolio resilience. Over the longer term, the precious metal may benefit from strategic tailwinds from pressure on bond yields through large central bank quantitative easing programs and a lower-for-longer rate environment,” Li said. “In a climate of uncertainty, portfolio resilience is more important than ever.”

For the rest of the year, Li said that the firm expects strong investment demand, central bank purchases and supply disruptions due to the coronavirus pandemic to support gold prices.

Long-term, she said that lower-for-longer interest rates will be a positive environment for the precious metal.

“The unprecedented response to the coronavirus shock by global central banks has led to trillions of dollars in asset purchases and further cuts to interest rates; meanwhile governments have followed suit with record fiscal easing globally. This has pushed bond yields to record lows, further reducing the opportunity cost of holding a non-yielding asset such as gold,” Li said.

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