Gold investors don’t care about stock market tantrum

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(Bloomberg) — The end of an era of easy money would normally spell bad news for gold. But right now, fund managers are holding onto their holdings.

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At a time when stocks and bitcoin – often touted as digital gold – are tumbling as accommodative monetary policy draws to a close, exchange-traded fund bullion holdings are proving resilient. Despite expectations of multiple U.S. interest rate hikes this year, bets that real rates will remain negative and demand for an inflation hedge are supporting the appeal of the secular haven.

Christoph Schmidt, who leads DWS Group’s €20 billion ($22.6 billion) Multi Asset Total Return team, is among those in no rush to sell and who has helped keep prices from falling. fall.

“I wouldn’t expect our position on gold to change for the foreseeable future,” said Frankfurt-based Schmidt, who holds 8% of his funds in gold. “We don’t see a dramatic change in the interest rate environment.”

Most analysts forecast a bad year for gold due to fears of falling prices and holdings, such as that seen in 2013 after the Federal Reserve announced policy tightening and investors lost confidence. in the metal. Yet prices are holding near a two-month high and ETF holdings are still well above where they were before the Covid-19 crisis began.

Sticky prices

After falling the most in six years in 2021, bullion prices have risen slightly this month, an impressive performance compared to some other assets. Global stocks fell more than 6% and Bitcoin lost around a fifth of its value on fears that an impending Fed rate hike could undermine investor sentiment.

While ETF holdings have declined slightly over the past six months, at this rate of decline, it would take them around seven years to return to the level seen at the start of 2020.

The metal fell 0.3% to $1,837.85 an ounce on Tuesday as the dollar rose slightly.

One of the main reasons fund managers are sticking with gold is because they see real yields remaining negative as the Fed scrambles to tighten policy enough to push interest rates to the bottom. above inflation. Concerns about high inflation are also benefiting gold, with the US CPI rising at the fastest pace in four decades in December.

“We see gold making higher highs and higher lows going forward due to the amount of liquidity created over the past two years,” said Michael Cuggino, president of Permanent Portfolio Family of Funds in San Francisco and which holds a quarter of its holdings in precious metals. “Inflation is first and foremost a matter of money creation.”

Gold could also benefit from a potentially weaker dollar as investors reduce positions in US companies, according to Patrick Fruzzetti, portfolio manager at Rose Advisors in New York.

“The dollar at the minimum will not strengthen, but at the maximum will certainly weaken,” said Fruzzetti, whose team manages $1.4 billion.

This week’s Fed meeting could be key in shaping gold’s outlook. More hawkish rhetoric from the central bank could bolster the outlook for longer-term rate hikes, dampening the appeal of non-performing gold. If inflation slows faster than expected or the dollar strengthens, that would also weigh on the metal.

The prospect of higher real rates prompted some investors to turn away from gold. Last year, Russ Koesterich of BlackRock Inc. said he had reduced nearly all of his gold holdings, citing the prospect of real rates normalizing as the economy strengthens.

But there’s still some way to go before real yields turn positive again, and their recent rise isn’t enough to sway Columbia Threadneedle Investment’s Toby Nangle out of gold just yet.

“I don’t feel more inclined to build up more gold reserves,” said Nangle, who manages more than $3 billion in London. “But we haven’t reached the selling point yet.”

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