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2% of your portfolio should be in gold - Berkley's Barry Eichengreen

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(Kitco News) - The gold market continues to see lackluster demand, with the price holding below $1,800 an ounce, but there is still plenty of optimism in the marketplace, according to the London Bullion Market Association.

Due to the ongoing COVID-19 pandemic, the LBMA held its annual conference digitally this year, and the message on day one of the conference was that the precious metal continues to play an important role in an investor's portfolio.

Although last year's euphoria has moderated slightly this year, attendees at the conference still look for prices to be significantly higher by next year. According to an online poll, LBMA conference participants see gold prices pushing to $1,969 an ounce by next year's conference. The bullish outlook comes as gold prices struggle below $1,800 an ounce.

Although the LBMA canceled its conference last year, a price survey was still conducted. Last year LBMA conference participants thought that gold prices would be above $2,000 an ounce by now.

Investors are now asking what role gold plays as it faces record equity markets and a potential shift in U.S. monetary policy. 

As keynote speaker during the conference, Barry Eichengreen, professor of economics at the University of Berkeley, California, said that he doesn't see gold as a great hedge against inflation. He added that he sees inflation as being transitory, but the Federal Reserve will still be behind the curve that will force them to rush in and catch up.

Instead of looking at gold as an inflation hedge, Eichengreen sees it as a hedge against uncertainty.

"Gold has a low correlation with other asset classes, meaning that it's a useful means of diversification," he said. "Gold should be 2% of a well-diversified portfolio," he said.

John Reade, chief market strategist at the World Gold Council and moderator of the precious metal discussion, agreed that gold does well in periods of uncertainty. He added that is why the precious metal has struggled lately.

Reade added that he is not surprised that interest in gold has been lackluster as equity markets move from record highs to record highs.

"If you look at the chart of the S&P 500 over the last couple of years, investors have loved one thing, which is buy the 'something' dip because it just keeps going up," he said. "In an environment where you don't think you need to diversify, where you just need to buy more equities, I'm not surprised that gold investment has been down this year."

Although gold demand has been inconsistent so far this year, Reade said that market uncertainty is just starting to pick up and it wouldn't take much to shift the current sentiment in the gold market.

One issue, in particular, the gold panel mentioned was fast approaching debt ceiling in the U.S. Sunday, in an opinion in the Wall Street Journal, U.S. Treasury Secretary Janet Yellen once again appealed to Congress, urging U.S. lawmakers to raise the debt ceiling before the U.S. plunges into a new financial crisis.

"It is going to be an interesting quarter," said Reade.

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.