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Gold has proven its value as a diversified asset - Invesco's Hooper
(Kitco News) - Volatility and uncertainty continue to sweep through financial assets. Now is the time investors should be well-diversified, which includes having exposure to commodities, including gold, according to one market strategist.
In a recent telephone interview with Kitco News, Kristina Hooper, chief investment strategist at Invesco, said tactically being overweight gold to other commodities could help weather the current storm caused by Russia's war with Ukraine, which has entered its fourth week.
Hooper said that with volatility now commonplace in markets, gold is attractive around $1,950 an ounce, and prices are expected to remain elevated through 2022. However, she added more than the short-term trend; the current environment has proved gold's value as a long-term diversified asset.
"This is the year everyone will believe in the Gospel of diversification," Hooper said. "The argument for gold as an asset class is strong. There could be a number of years when you don't think you need an asset like gold in your portfolio until the time comes when you realize you do."
Hooper added that even if Russia's war with Ukraine is resolved, the world has become a lot more uncertain.
"You don't know when the next geopolitical event will happen. You don't know when the next inflation threat hits, so having long-term exposure to commodities and gold makes sense," she said.
Along with the rising geopolitical uncertainty, Hooper said that rising inflation will continue to support gold prices. However, she added that it is still unclear how long consumer prices will be elevated.
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Russia's war with Ukraine has roiled the entire commodity complex, pushing prices and inflation higher. Still, Hooper added how long this conflict lasts will determine how high consumer prices will last.
"The geopolitical events that have unfolded in the last month have exacerbated inflationary pressures. There is no doubt about that. I am still confident that if this conflict is resolved soon, inflation will be mid-2022," she said.
Along with the growing conflict in Eastern Europe, Hooper said that the most significant risk now is central banks, specifically the Federal Reserve making a policy mistake. However, she added that this risk remains low as the U.S. central bank will tread a measured course.
She added that the risks of a recession remain low as the North American economy sees solid fundamentals, albeit in a slower growth environment.
Wednesday, the Federal Reserve sharply lowered its growth forecast. It sees GDP expanding 2.8% this year, down from its previous forecast of 4% growth. At the same time, the central bank expects core inflation, which strips out volatile food and energy prices, to rise 4.1% this year, up compared to December's estimate of 2.7%.
Looking at monetary policy, the Federal Reserve signaled that it could raise interest rates seven times this year, pushing interest rates to 1.75%.
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