All That Glitters

Image source: Nick Nice @nicknice - Unsplash, VikiVector, Orapin Joyphuem - Shutterstock

What's going on?

Gold might look like the ticket to protecting your portfolio, but BlackRock the worlds biggest investment manager thinks some of that shine is starting to rub off.

What does this mean?

Investors typically think of gold as a hedge: it protects them from the cash-eroding effect of inflation by rising alongside the prices of goods and services, and given that investors usually buy into the metal in times of turmoil from stock market drops too.



But BlackRock thinks those truisms are flawed: they might justify holding gold for hundreds of years, sure, but very few investors tend to last that long. Over much shorter time horizons, the metals relationship with inflation and stocks isnt actually all that strong. Instead, BlackRock reckons the best hedge is cold hard cash especially while inflation is so low (tweet this).

Why should I care?

Zooming in: Golds still got a few tricks up its sleeve…


At least golds relationship with the US dollar is holding up: the metals price usually rises when the dollars value falls relative to other currencies, and BlackRock doesnt think thatll change any time soon. Thats because gold is priced in dollars, so a cheaper dollar all else equal makes the commodity look cheaper to non-US buyers. And if that tempts them to buy in, its price might still have room to rise.



The bigger picture: but an economic recovery isnt one of them.


Gold might become more valuable over time, but it doesnt earn investors dividends or interest payments along the way like a stock or bond might. So as the economy recovers, inflation picks up, and interest rates rise, income-focused investors who are finally able to make decent returns elsewhere might start to lose interest in the metal altogether.

Originally posted as part of the Finimize daily email.

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