Gold is more than just a safe-haven asset and can fit in all portfolios – WGC's John Reade
Safe-haven demand is pushing gold prices to a three-month high but will rising geopolitical tensions create a sustainable bid in the precious metal.
On Monday editor Neils Christensen recorded a podcast with Phillip Streible, chief market strategist at Blue Line Futures. The guest was John Reade, chief market strategist of the World Gold Council. The three talked about the health of the global marketplace.
Reade said safe-haven demand is positive for gold, but prices could see a sharp correction if the conflict is quickly resolved.
Instead of looking at short-term price volatility, Reade said that the World Gold Council's research shows that gold plays a vital diversification role for any type of portfolio.
"We've issued various editions of the strategic case for gold in the U.K. and Europe and Australia, Russia, Singapore. Looking at the benchmark of assets that might be in a typical portfolio for each of those countries, you find very similar result," he said. "Somewhere between 4% and maybe the higher 10%, of gold in your portfolio seems to be optimal for increasing the risk-adjusted returns," he said.
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The comments come as the gold market saw an interesting trend last year as investment demand in exchange-traded products lagged physical demand. In its annual analysis of the gold market, the WGC reported that physical demand for the precious metal rose 10% to 4,021 tonnes in 2021 as 173 tonnes of gold were liquidated from ETFs.
Looking through the rest of 2022, Reade said that he thinks the gold market is in a good place, even as the precious metal faces the prospect that the Federal Reserve could raise interest rates seven times this year.
"If there were one or two mikes priced into the curve, I'd be a lot more nervous," he said. "I think we're in for some very interesting times in markets over the next, well, two months to two years."
As for gold versus Bitcoin, Reade said that the two assets are entirely different. He explained that while digital currencies have improved a portfolio's return, it has also added risk and volatility.
By Neils Christensen
For Kitco News
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