Remain Bullish On Gold Even As Interest Rates Trend Higher

London (July 7)  As an asset class, gold has been an underperformer over the last few years. Returns from the precious metal have been 8.1% in three years, and it has given negative returns of 2.4% in YTD '18.

One perspective can be that gold is in a phase of prolonged consolidation and can move higher after the current sideways trend.

Another perspective is that the US Fed fund rates have been increasing, and that's an indication (in general) of tightening monetary policy. What follows is that the dollar is likely to get stronger and gold can see further decline in the coming quarters.

However, I hold a different view, and I remain bullish on the precious metal with a holding horizon of 3-5 years.

Before discussing my opinion, I would like to mention that I consider gold as an honest currency more than an investment that provides robust returns in a short time horizon. Therefore, I don't advise more than 10% to 15% of portfolio exposure to gold.

Having said that, the precious metal does have boom and bust cycles, and in the boom period, it can deliver stellar returns. It is worth reminding investors here that gold has given returns of 334% from the beginning of 2000 to July 5, 2018. During the same period, the S&P 500 index has returned 95%.

SeekingAlpha