(Kitco News) - The world’s biggest asset management firm is reiterating its bullish outlook on gold, emphasizing its role as an important diversification tool in 2025.
In a commentary published Monday, Russ Koesterich, Managing Director and portfolio manager of BlackRock’s Global Allocation team, said he expects gold prices to continue rising even as the U.S. dollar and interest rates remain elevated.
He added that gold remains well supported as central banks continue purchasing the precious metal and the U.S. government deficit continues to grow.
"Gold continues to work. Year-to-date, the precious metal is up 3%, beating stocks. On a one-year basis, gold has gained more than 30%, making it one of the best-performing asset classes," he said.
Regarding central bank demand, Koesterich said he expects China to remain a dominant player in the marketplace as it diversifies its holdings away from the U.S. dollar.
"One of the reasons China is buying more gold is that they are buying fewer U.S. Treasuries," he said. “While much of the shift can be attributed to geopolitical considerations and concerns over U.S. sanctions, nagging questions regarding U.S. fiscal sustainability are a growing consideration, not just for the Chinese but also for domestic investors.”
At the same time, Koesterich noted that it doesn’t appear the new Trump administration will rein in spending anytime soon.
"There are still many questions regarding the new administration’s fiscal plans, however the potential extension of the 2017 tax cuts suggests deficits are unlikely to go down, and in the short-term may increase. This is the second factor supporting gold: an ever-growing supply of debt driven by a deteriorating U.S. fiscal position. To the extent investors remain focused on when and how the U.S.’s debt problem resolves itself, gold likely remains in demand as a diversifying asset," he said.
Although Koesterich sees gold as an important diversification tool in a portfolio, he also noted its limitations, saying he does not view gold as an effective hedge against equity market risks.
"During the past year, the correlation between gold and U.S. equities has been approximately 0.25, indicating that the price of gold and U.S. stocks have a propensity to rise and fall together," he said. “For investors, the implication is that, at least in the short-term, gold is not an effective way to protect your equity gains. However, as a store of value for the long-term, gold continues to make a lot of sense.”
