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Tuesday, May 22, 2018

Gold to Emerge as an Important Asset for Current Times

Despite a tame month, gold is set to remain a key part of any portfolio.

gold a useful tool for portfolio

Although multiple factors converged to push gold prices lower in April, an article on Financial Express says the metal could still emerge as the year's marquee asset due to the state of the global economy.

Besides temporary relief from geopolitical tensions and a rise in bond yields, a stronger U.S. dollar was also a major contributor to a tame month for gold. After a prolonged decline that raised eyebrows with both domestic and foreign investors, the dollar index finally caught some respite and reversed its trajectory. According to the article, the greenback now sits at multi-week highs, a position largely influenced by the Federal reserve's hawkish stance.

Having left interest rates unchanged during their latest meeting, the Fed nonetheless affirmed their previous forecast for a total of three rate hikes in 2018. Officials also expressed their desire to continue with the monetary tightening for the foreseeable future should current economic conditions persist. And while successive rate hikes are generally seen as negative for gold, there are ways that the metal could reap the benefits from this aggressive policy says the article.

To some, the Fed's current course is analogue to taking away the proverbial punch bowl. Given the loose monetary policy of the last decade, a sudden shift to a more austere approach could shock the laid-back markets. Among the worst to suffer this effect could be the long-soaring stock market states the article, which recently begun to show cracks after seeming invulnerable. The Fed's goal of reducing their balance sheet by $420 billion this year and $600 billion the next could slowly introduce discord into equities. Despite tax cuts and other encouraging developments, 2018 could see investors' optimism dwindle as they wake up to the reality of a lesser money supply.

Inflation expectations could act as another source of gold's strength. The Fed is confident that it can maintain the targeted inflation rate of 2%, and much of their current agenda rests upon it. But many are quick to forget that inflation was moving in the opposite direction for some time, raising concerns that the reversal was achieved too quick. Given that the ideal 2% have already been surpassed, the Fed could find itself struggling to deal with soaring inflation. In this environment, the article says gold would quickly become a most-desired commodity.

The economic tug of war between the U.S. and China will also continue to remind investors that gold is a key part of any portfolio. Despite the seeming calmness in recent weeks, the situation is only beginning to develop, and the leaders of both countries are unlikely to back down. Global growth, industrial metals and energy will all come under attack should the threat of a trade war return.

The article states that this would harm bond yields as investors shun U.S. debt, and the rapid expansion of the latter has already placed the dollar's long-term purchasing power into question.

Regardless of short-term happenings, the ongoing lack of equilibrium in the global economy along with constant geopolitical flare-ups are sure to preserve gold's favor among risk-averse investors.

Tuesday, May 1, 2018

ETF Manager Says Believes it's Time to Move into Gold

Fritz Folts says the risk-happy investment landscape in recent years is quickly shifting to one that favors safer assets like gold.

etf firm moves into gold

According to a recent article on Bloomberg, a veteran fund manager with over three decades of experience has lost his appetite for ETFs and is moving into gold. Fritz Folts currently acts as chief investment strategist and managing partner at 3EDGE Asset Management, where he oversees $800 million in assets. The firm started in January 2016 with $100 million under management, and has since averaged an annual return of 9.03% in its portfolio.

During their early days, the firm focused heavily on emerging-market ETFs and country-specific funds and made several profitable bets along the way. But the article reports Folts no longer sees this strategy as prudent and has slashed his positions in stock-backed funds while eliminating his exposure to emerging-market ETFs.

Folts' reasoning is straightforward – he says that the risk-happy investment landscape in recent years is quickly shifting to one that favors measured bets and safer assets. In fact, 2017 is an example of how growth momentum and optimism from investors can combine to propel a market sky-high, as equities kept reaching new peaks throughout the year.

In 2018, the senior money manager sees growth diminishing across the board and investors becoming wary of over-exposure to risk. The article states the latter has become that much more apparent by this year's sharp tumbles in the stock market, which were concerning enough to elicit a response from the White House.

In a phone interview with Bloomberg, Folts shared his view that gold is becoming the asset to own in this new environment. To him, the metal is the best way to absorb external shocks and combat the rise in volatility. Gold has gained 1% over the past month, aided by geopolitical tensions and the possibility of a trade war between the U.S. and various other top economies.

What started as an increase in tariffs on metal imports by President Trump escalated into a back-and-forth between the U.S. and China, sparking concerns that the global market could suffer as a result, reports the article. The European Union likewise responded negatively to Trump's restrictions, threatening to retaliate in kind should the policy continue. These events placed further pressure on the stock market, which was already showing its first cracks, and reignited interest in precious metals.

Folts is also bearish on debt and expects rising rates to continue pushing bonds down. Absent a particularly strong corporate earnings report or an abrupt change in the Fed's rhetoric, he sees little reason to place faith in stocks and speculative ETFs, especially given gold's strong performance as of late.

"We will definitely have more volatility this year," he added. "And gold can help us there."