The equities market has rebounded off one of the worst starts to a new year, but investors who believe volatility will once again rear its ugly head may want to hedge potential risks down the road with gold exchange traded funds.
JPMorgan Global Head of Quantitative and Derivatives Research Marko Kolanovic argued that the recent rally may be on tenuous grounds, reports Stephanie Landsman for CNBC.
Kolanovic contends that the recent bounce has been more technical in nature and largely backed by momentum investors covering bets that the S&P would plunge. Consequently, the recent moves may have just been a result of portfolio repositioning and not from improved fundamentals.
“Although risk slightly may be on the upside rather than on downside, I would say fundamentally … you [potentially]have 5 percent upside and 10 percent downside, so it doesn’t look that great,” Kolanovic told CNBC.
Consequently, Kolanovic believes that investors are better off with a defensive gold position now even after the recent run-up in the precious metal.
Furthermore, the strategist projects a weaker dollar will help bolster gold. The Federal Reserve’s dovish stance “should put some downward pressure on the dollar and hence should be supportive of gold.” The increased likelihood of Donald Trump winning the presidential election could also be bearish on the USD, given the restrictive trade measures the candidate has proposed.