(Kitco News) - The gold market continues to consolidate at elevated levels above $3,600 an ounce but is struggling to attract new momentum, even as the Federal Reserve embarks on a new easing cycle.
Some analysts have explained that the profit-taking in gold comes as investors take a second look at the U.S. central bank’s shift in monetary policy. Although interest rates are projected to move lower, Federal Reserve Chair Jerome Powell poured some cold water on expectations for any aggressive rate cuts.
In his press conference, Powell described the FOMC’s decision as the latter — a “risk management” cut motivated by apprehension rather than confidence.
“The Fed’s 25 basis point cut is a clear signal: the softening labor market and stubborn inflation have pushed policymakers to act — but gradually,” said Gina Bolvin, President of Bolvin Wealth Management Group, in a note Wednesday. “This isn’t a pivot, it’s a measured step. For investors, this means modest rate relief, not fireworks.”
Analysts noted that the Federal Reserve’s more nuanced stance has supported the U.S. dollar, which in turn has weighed on gold.
Despite gold’s weaker price action, many analysts expect that prices will remain in a long-term uptrend and that there is still plenty of value in the marketplace, as economic and geopolitical uncertainty remain elevated.
As gold stays well supported in a long-term uptrend, the biggest question for many investors is how much of the precious metal they should own. There is currently a fairly wide range of opinion among investors on the appropriate allocation.
On Tuesday, analysts at French bank Société Générale increased their stake in gold, taking a maximum 10% position as part of their Multi-Asset Portfolio Strategy. The bank expects gold prices to trade around $4,000 an ounce through 2026.
In a comment to Kitco News, Chris Mancini, co-Portfolio Manager of GOLDX at Gabelli Funds, said he recommends investors hold between 5% and 10% of their portfolios in gold.
He added that gold is still an attractive investment, as generalist investors continue to largely ignore the precious metal.
“Investors are still pretty agnostic about gold. We haven’t seen a lot of interest from the broad market notwithstanding the huge recent move in the price of the metal,” he said. “When gold held in gold-backed [exchange-traded funds (ETF)] goes a meaningful amount above its last high during COVID, then we might be nearing a peak in the gold price. We’re nowhere near there yet.”
Mancini said he expects interest in gold to pick up as investors look to protect the purchasing power of their portfolios.
“Trust in the US dollar and other fiat currencies has eroded somewhat recently, which has made gold more attractive as an alternative,” he said.
David Miller, Chief Investment Officer at Catalyst Funds and Portfolio Manager of Strategy Shares Gold Enhanced Yield ETF (BATS: GOLY), recommends that investors hold about 15% of their portfolios in gold.
He added that robust central bank gold demand continues to support the market.
“Investors are increasingly turning to gold as a safe-haven asset, driven by a palpable lack of confidence in the US dollar, which has been weakening amid persistent inflation and geopolitical uncertainties,” he said. “The increase in the price of gold has dramatically outpaced inflation, which reflects the transition in trust from FIAT money to hard currencies like gold.”
Miller added that he expects prices to continue moving higher as government debt further damages the U.S. dollar’s role as the world’s reserve currency.
“Given the US government has 36 trillion in debt and a 1.9 trillion deficit, it is necessary to devalue the dollar incrementally over time to keep the government solvent,” he said. “Gold can't be printed or devalued.”
In another recent interview with Kitco News, Jerry Prior, COO and Senior Portfolio Manager of the KraneShares Mount Lucas Managed Futures Index Strategy ETF (NYSE: KMLM), said that his firm currently holds an 8% to 9% position in gold, which is the maximum allocation. He noted that because of gold’s gains so far this year, the allocation increased to about 12%, and they took some profits at higher prices.
In a recent interview with Kitco News in July, Aakash Doshi, Head of Gold Strategy at State Street Investment Management, said that the only gold allocation investors should not have is 0%.
“ We know 0% is too low, so it's part of a liquid alternative sleeve. We typically find a minimum of 3%, but going as high as 10% can really work out well in a portfolio,” he said.
