BlackRock: Gold ‘failing’ as equity hedge, facing headwinds
Global money manager BlackRock Inc just delivered a double-barrelled warning on the merits of holding traditional haven gold right now.
Bullion was proving to be a less effective hedge against moves in other assets, such as stocks, as well as inflation, said Russ Koesterich, portfolio manager for BlackRock’s Global Allocation Fund.
Moreover, gold faced headwinds should the recovery pick up pace, he warned in a blog post.
Gold is “failing as an equity hedge”, said Koesterich, noting its positive relationship with risky assets was even stronger when compared with tech stocks.
“Gold’s ability to hedge against inflation has been somewhat exaggerated. While it is a reasonable store of value over the very long-term — think centuries — it is less reliable across most investment horizons.”
Bullion has lost ground this year as the recovery from the Covid-19 pandemic gains more traction and Treasury yields surge, although the haven has made a partial comeback this week.
The typical case for holding the metal in a multi-asset portfolio is that it can help to balance out shifts in other holdings, especially equities. But BlackRock says right now gold isn’t working well as a hedge against either stock moves or inflation risks, although it was against the US dollar.
“Absent a strong view on a declining US dollar, I would own less gold,” Koesterich wrote, noting that the precious metal was still demonstrating a strong inverse relationship with the US currency.
Spot gold traded at US$1,735.16 an ounce at 9.35am, here, down more than 8.0 per cent this year, while a gauge of the US currency has risen about 1.8 per cent.
“While gold’s recent correlation with stocks and inflation has been positive to effectively zero, it is still demonstrating a strong, negative relationship with the US dollar,” said Koesterich.
“For this reason, gold should probably still be thought of as a
US dollar hedge.”
Bullion’s decline this year has been accompanied by a steady drawdown in holdings in goldbacked exchange-traded funds, while banks have chopped price targets after the asset hit a record last year.
Banks paring forecasts include UBS Group AG and Goldman Sachs Group Inc, with the latter noting that the main reason behind gold’s underperformance was a strong rotation into risky assets on the back of a repricing of global growth.