BlackRock thinks gold might not be the inflation hedge we think it is
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(Kitco News) - Gold’s strength as a hedge to rising inflation is being questioned by the world’s biggest asset management firm.
Russ Koesterich, portfolio manager for BlackRock's Global Allocation Fund, recently gave an interview with Bloomberg in which he is said that the precious metal’s ability to hedge against inflation has been “somewhat exaggerated.”
“While it is a reasonable store of value over the very long-term - think centuries - it is less reliable across most investment horizons,” he said in the interview.
He went on to add, "Absent a strong view on a declining dollar, I would own less gold, and for those investors still looking for a hedge, one word: cash."
Although BlackRock is questioning gold’s relationship with rising price pressure and even as a safe-haven against record equity valuations, Koesterich said that the yellow metal can still have a role to play in a portfolio.
"While gold's recent correlation with stocks and inflation has been positive to effectively zero, it is still demonstrating a strong, negative relationship with the dollar," said Koesterich. "For this reason, gold should probably still be thought of as a dollar hedge."
Koesterich also noted that gold could continue to be at the mercy of rising bond yields as more stimulus and improving vaccine distribution suggest the possibility of an economic surge,
“Should this happen, real rates are likely to continue to rise from still historically depressed levels. As has been the case the past month, this will likely prove a headwind for gold,” he said.
Looking at the weekly chart, it is clear to see the massive decline since the new all-time high was made in August 2020. Now traders and investors need to decide if this is a retracement or if the yellow metal is moving into a downtrend.
The red support line at $1676.6/oz has been used to great effect, but it could be still vulnerable to a move to the downside. The correlation between the US 10 year yield and gold could be important moving forward.