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BlackRock sees three reasons why investors should consider a tactical allocation to gold

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(Kitco News) - Gold has not been able to hold its gains above $2,000 an ounce; however, the world's latest asset management firm recommends investors consider a tactical allocation to the precious metal.

In their latest gold market outlook, analysts at BlackRock said that they see potential for gold prices to move higher even after May's sharp selloff from its near-record highs. The bullish outlook comes as prices struggle at a critical support level. August gold futures last traded at $1,956.40 an ounce, down 1.26% on the day.

"Gold is having a moment; one we believe is likely to continue. The precious metal has risen over 8% so far in 2023, thanks to a combination of positive factors," the analysts said in the report. "Gold fell from its May 3 high around $2050 per ounce amid expectations the U.S. would avoid missing the deadline to raise the debt ceiling. That said, the decline occurred after gold rallied nearly 30% from its 52-week low. If gold proves able to sustain a rally above its 10-year high of $2067, that may suggest another leg in the rally is likely."

The analysts said they see three factors that will continue to support gold prices. The most significant factor driving the precious metal is the Federal Reserve's monetary policy. Markets are expecting the Federal Reserve will keep interest rates unchanged next week.

BlackRock said that it is likely that May will prove to be the last rate hike in this tightening cycle.

"To be sure, we don't share the consensus view that the Fed will be cutting rates in 2023, which presumably would accentuate the downward trends in the dollar and real rates. But the Fed staying on hold is our base case and that should support gold at current prices," the analysts said.

The investment firm also sees gold benefiting from rising market volatility.

Gold ETF demand turns positive in May as investors look for safe-haven assets

"Investors often turn to gold as a way to diversify portfolios amid financial market volatility. Gold historically has a low correlation with broad U.S. stock and bond exposures. In the last 20-years, monthly price correlation between gold and the S&P 500 was 0.09, meaning there was virtually no correlation between stocks and gold," the analysts said. "While it is unclear if and when another shock may hit, investors may choose allocations to gold as a potential hedge against future unrest."

Finally, BlackRock said that it sees more potential for gold as a geopolitical safe-haven asset and less of a hedge against inflation.

"With a contentious Presidential election in the offing, it's unlikely U.S. political acrimony will subside anytime soon. That said, the big area of bipartisan agreement in U.S. politics centers on containing China's growing economic and political clout. Gold seems likely to benefit, as it did when Russia invaded Ukraine in early 2022, if geopolitical tensions rise," the analysts 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.