Gold: Near-term pressure but long-term purpose
Gold: Near-term pressure but long-term purpose
Gold has had a volatile few months, with prices recently slipping back below where they started earlier this year.
In the near-term, the outlook for gold appears challenging.
Higher interest rates and rising inflation-adjusted bond yields mean investors can potentially earn more attractive income from lower risk assets like government bonds. This dims the attractiveness of gold, which carries no yield and pays no income.
Moreover, a resilient US economy, sticky inflation and a stronger US Dollar continue to weigh on the precious metal.
Furthermore, interest rates are expected to stay higher for longer, with the US Federal Reserve now likely to hold rates steady through the year, rather than cut as previously expected. Markets are even pricing a small chance of a rate hike.
Review and reassess
Given the challenging near-term outlook, it may be timely to reassess and review portfolio positioning. Significant exposure to gold can amplify volatility in this fast-moving and uncertain rate environment.
Diversifying into income-generating assets, be it through globally diversified fixed income funds, dividend equity strategies or multi-asset income approaches, can help mitigate volatility while still maintaining exposure to different market drivers.
Under pressure but not out of favour
Despite the near-term headwinds, gold’s longer-term strategic role remains unchanged. It continues to serve as a hedge against geopolitical risks, policy uncertainty and long-term currency debasement.
These structural drivers have not disappeared – for now, they are simply being overshadowed by higher rates.
The bottom line
Gold may be under pressure in the short run, but it still plays an important role in building long-term portfolio resilience. Prudent exposure matters.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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