(Kitco News) - Higher bond yields and a relatively resilient economy should not preclude investors from owning gold in a diversified portfolio, according to one market strategist.
Ahead of the new year, Tom Bruce, Macro Investment Strategist at Tanglewood Total Wealth Management, said in an interview with Kitco News that he is “mildly” constructive on gold as the precious metal faces some difficult headwinds.
Bruce noted that while he doesn’t have a specific price target, he expects gold prices to rise about 10% next year, which would keep them below $3,000 an ounce.
He said that the biggest short-term challenge for gold in 2025 will be rising real yields and resilient economic growth in the U.S.
“We expect that the 10-year yield is at the low end of where it should be,” he said. “We could see a figure in the fives pretty easily, and without inflation changing much, that's such an increase in real interest rates.”
However, Bruce added that despite some short-term volatility due to higher real yields, gold’s long-term uptrend remains in place as central bank gold purchases create a new dynamic in the marketplace.
He emphasized that central banks are far from done buying gold as they diversify away from the U.S. dollar.
“During the Cold War era, gold represented about a 30% allocation for central bank reserves. And as of a couple of years ago, I believe the number is only around 10%. Maybe it doesn’t get back to 30%, but it goes back to 20% or maybe 25%. That's still a huge source of demand for gold over the medium-term horizon,” Bruce said.
Although gold could see subdued gains next year compared to its 2024 performance of nearly 30%, Bruce said that it remains an important asset for investors to own.
He added that currently, his firm recommends holding a 9.5% allocation in gold this year, which represents an overweight rating.
“This is about as high as we would go on a recommendation because it serves as an important portfolio hedge. If everything else goes wrong, gold is likely to do well. So, we like that as a core component always,” he said.
Although most investors have shunned gold through 2024 as higher bond yields have raised opportunity costs, Bruce said that many of his clients have been receptive to holding gold in their portfolios.
“There is definitely some positive sentiment in the market right now. It’s been a big year in gold, but at the same time, that doesn't mean that it needs to end either,” Bruce said.
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