Positive signs for gold as markets tumble

Added 23rd March 2016

Gold outperformed most other assets as global equity markets took a beating at the start of 2016, according to State Street Global Advisors.

Positive signs for gold as markets tumble

“We see encouraging signs that may support the gold market this year,” the firm said in a recent research note.

While interest rate hikes often exert some pressures on gold as bond yields rise and become more attractive to investors, the outlook of US rates remains uncertain after the first hike for nine years in December last year.

“The Fed expects to hike rates by 1% by the end of 2016. Market consensus is more dovish and expects the Fed Funds rate to be below 1% by the end of 2016. Either way, rates may remain low for some time.

“Moreover, while we see room for the dollar to strengthen given the current environment and monetary policies, we believe the strength will be likely more muted this year than in 2015. A strong dollar could put the Fed normalization on hold.

In addition, the firm’s outlook for the global economy in 2016 is for continued low growth, and concerns about a weakening Chinese economy and yuan devaluation continue to weigh on the market.

“In such an environment, gold’s role as a portfolio diversifier and tail risk hedge cannot be overlooked.”

Citing research from the World Gold Council, the firm said in the long run, holding 2% to 10% of an investors' portfolio in gold can support portfolio performance.

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