Gold still has role as portfolio diversifier, risk hedge


NEW YORK (Scrap Register): Inflationary and geopolitical concerns mean investors may keep looking to gold as a portfolio diversifier and hedge, said Mitsubishi.

Anticipation of “Trumponomics” has boosted equities, base metals and the U.S. dollar on hopes of tax cuts coupled with infrastructure spending, Mitsubishi says. Yields on U.S. Treasury notes surged as investors rotated toward so-called risk assets.

“Some have even called the recent move in U.S. yields as ending the 30-year-long bear market in U.S. Treasuries and thereby potentially making gold and precious look like a much less attractive prospect for investors,” Mitsubishi added.

However, Mitsubishi believes that this is overdone; 10-year yields have not yet seriously threatened to break out of their long-term downtrend, while real rates (inflation-adjusted Treasury yields) are still well below their 2016 highs.

“In addition, with record-high U.S. equity valuations, there is considerable downside risk from here, and longer term we believe that inflationary and geopolitical pressures will continue to make the case for gold as a portfolio diversifier and risk hedge,” Mitsubishi added.

Additionally, a more protectionist U.S. stance on trade also means a role for gold as a risk hedge in the medium to longer term, said Mitsubishi.

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