Blackrock is sceptic on gold as hedge against inflation and equities

Russ Koesterich, managing director at the world’s largest asset manager Blackrock, with $8trillion in its portfolio, warned against gold as a a hedge against both equities and inflation.

Russ Koesterich commented on developments in a blog post on Wednesay saying gold is seen to trade “with a positive correlation” with stocks, causing problems for investors who want to protect themselves against falling equity prices.

While gold’s performance to the S&P stocks still represents a gap with its price seen rising roughly 0.2% for every one percentage point rise in the S&P 500, Koesterich pointed that from a portfolio standpoint, it indicates that gold is a less effective hedge.

The relationship is even stronger for high-growth tech stocks, with the correlation at around 0.5%. As Koesterich said:

“Put differently, gold and tech are increasingly moving in tandem.”

He further commented on gold’s ability to protect against inflation:

“Unfortunately, gold’s ability to hedge against inflation has been somewhat exaggerated. While it is a reasonable store of value over the very long-term, think centuries, it is less reliable across most investment horizons, including the most recent period.”

Gold has declined by around 5% over the last few months, despite expectations of inflation rising to their highest since 2008 with the money printing machine running in the back.

On gold’s position against the dollar, Koesterich said:

“While gold’s recent correlation with stocks and inflation has been positive to effectively zero, it is still demonstrating a strong, negative relationship with the dollar. For this reason, gold should probably still be thought of as a dollar hedge.”

Following the latest $1.9trillion stimulus plan, fears on further US inflation rise among US investors questioning the actions of the government.

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