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The precious metal often labeled a ‘hedge against inflation’ and commonly known as a ‘safe haven’, is looking dull.
Gold (GC=F) is 23% off from its peak in March, and 10% down year-to-date.
In our series, ‘What to do in a bear market’, we asked the experts to tell us if there is value to holding gold in this environment.
Why hasn’t gold performed better this year?
“First, with major central banks around the world tightening their policies, this has helped to send bond yields to multi-year highs. Yield-seeking investors have been better off to hold government bonds to get some guaranteed return rather than holding zero-yielding assets like gold,” Fawad Razaqzada, market analyst at City Index and FOREX.com told Yahoo Finance.
“Second, the strengthening US dollar has weighed heavily on nearly all major buck-denominated assets, including gold. Would-be buyers earning in foreign currencies are having to pay more, and so they are being discouraged to invest in gold,” he continued.
Should investors hold gold in their portfolios, and if so, how much?
This is where fund managers and strategists really differ.
“We do not recommend a fixed allocation to gold unless investors want to speculate on currency rates or have some other short-term bull thesis that could cause gold to appreciate,” Jay Hatfield, portfolio manager of the InfraCap Equity Income Fund (ICAP) ETF told Yahoo Finance.
Rob Haworth, senior investment strategist at U.S. bank wealth management generally recommends “little to no permanent gold or metals exposure for portfolios given the price volatility and no consistent income stream.”
“Investors may consider very modest exposures if they are particularly concerned about trend in the value of the U.S. dollar reversing, which could unhinge inflation pressures further and support gold prices,” said Haworth.
Others support a small exposure in a portfolio.
“In general, although each investor’s situation is unique, we believe a 3-5% allocation to gold products would seem adequately sized to capture the benefits of holding gold as an asset class,” says Imaru Casanova, deputy portfolio manager/senior gold analyst at VanEck
Mohit Bajaj of WallachBech Capital tells Yahoo Finance he's a “big proponent of always allocating across the board in all sorts of asset classes. Anywhere from 5-10%… should be more than sufficient."
For investors who want to hold the yellow metal, which is better: Physical gold or paper gold (investments that cover gold ETFs) ?
Some experts bring up safety and storage concerns when it comes to physical gold.