This is a sponsored article from State Street Global Advisors.
Traditionally, investors have used gold tactically with the aim of helping to preserve wealth during market corrections, times of geopolitical stress or persistent dollar weakness. However, the expanding universe of investable asset classes and the relative ease of shifting between different assets mean that today’s typical multi-asset fund looks different to “balanced” stock-and-bond funds of the past.
Gold, a unique asset class that historically has a low or negative correlation with most other asset classes, is finding its way into many multi-asset strategies.
We have gathered some most frequently asked questions by investors about investing in gold, with Robin Tsui, ETF Gold Specialist at State Street Global Advisors, providing his insights below.
Q: What is the near term outlook for gold?
A: Gold is trading below the US$1,900/oz peak level reached in September 2011, so gold price is nowhere close to its prior peak. We may potentially see more upside potential than downside risk for gold due to ongoing geopolitical uncertainty, stretched valuations in equity markets and the current low real interest rate environment. Since the start of 2016, as a result of heightened geopolitical risk, an increase in stock market valuations, and a rising number of shock events such as Brexit and Trump’s presidential victory, gold is increasingly becoming an important strategic allocation in an investor’s portfolio to hedge against unexpected risk.
Since 2016, we have seen very strong inflows into SPDR Gold Shares (GLD) and other physically-backed gold ETFs.
Gold has traded within a US$1,150 and US$1,350 an ounce range since the third quarter of 2013. There have been occasional moves outside these parameters, but they have not been sustained. Today’s price is a little above the midpoint of this trading range, and the possibility of another test of the overhead resistance in the area around US$1,350 may represent a potential tactical opportunity.
Q: Where will gold go with the US rate hikes?
There may be short-term noise, but interest rate hikes are not necessarily negative for gold. The ten interest rate tightening cycles we analyzed since 1971, when gold effectively became free-floating, resulted in an average increase of 37% in the price of gold1. In line with prior tightening cycles, gold is currently up 21% (as of 30 September 2017) from the price level we saw in December 2015 when the current interest rate tightening cycle had just begun2.
It is important to note that historically, it is the real interest rate – as opposed to the nominal rate – that appears to have been the more predominant driver of gold3. We expect global real interest rates to remain fairly low in the near term and we expect this will continue to benefit gold as an non-yielding asset because a low real interest rate environment will potentially lower the opportunity cost of holding gold, making it a more attractive investment.
We expect the Fed to adopt a gradual path of interest rate rises in the near term and any upside surprises to inflation (a key indicator for the Fed when deciding to raise rates) should keep real interest rates low relative to historical levels.
Click here to continue reading on the following.
- Will a strong dollar weaken gold?
- Low inflation – what’s the role of gold?
- Is gold too volatile for a portfolio?
Source: Bloomberg Finance L.P., State Street Global Advisors, December 15, 2015 –September 30, 2017.
Source: State Street Global Advisors, “The Role of Gold in Today’s Global Multi-Asset Portfolio”, October 2017.
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The views expressed in this material are the views of Robin Tsui through the period ended 16 January 2018 and are subject to change based on market and other conditions. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
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This is a sponsored article from State Street Global Advisors.