There Is Still A Case For Gold, Just At A Lower Exposure - BlackRock

London (June 19)  The world’s biggest fund manager still sees a case for gold, it’s just warning investors not to be overweight the precious metal in their portfolios.

In its latest monthly gold report, analysts at BlackRock warned that they expect gold prices to remain range bound for the next year-and-a-half as the yellow metal faces an uphill battle against a growing global economy.

“We are optimistic on the outlook for global economic growth, which could dampen ‘safe-haven’ interest for gold and act as a headwind,” the analysts said in the report. “However, we see powerful arguments behind allocating to gold today, with geopolitical risk elevated and equity markets near all-time highs.”

The comments come as gold market is attempting to recover after seeing significant selling pressure last week. Friday, gold had its worst one-day performance since May as prices dropped to a six-month low, falling nearly 2%.

Bargain hunting at the start of the new trading week has helped the yellow metal hold critical support above a 2015 trend line. August gold futures settled Monday’s session at $1,280.10 an ounce, relatively flat on the day.

Looking ahead, the firm said that it is watching inflation pressures closely as this will be a significant driver going forward.

“Should inflation rise faster than the US Fed raises rates this year, this would depress real rates and would be a material positive for gold,” they said.

The firm is also watching the U.S. dollar, with the analysts saying it is in a long-term bear market. However, in a commentary published earlier in the month, Russ Koesterich, CFA, portfolio manager and a member of the global allocation team with BlackRock's multi-asset strategies group, said that the U.S. dollar could benefit from short-term momentum as it makes gains against the euro.

“For the first time in years, investors are beginning to question the long-term sustainability of the euro. These fears are probably overblown…” he said. “In an environment of a stronger U.S. economy and resurgent European political risk, the dollar may, at least temporarily, resume its former role as a safe-haven currency. All else equal, a stronger dollar is a headwind for gold. As such, I would reiterate my thinking from last November: Don't abandon gold, but own less than you normally would.”

Euro weakness is helping the U.S. Dollar Index hold near a seven-month high, last trading at 94.78 points.

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