As investors look to the second half of the year and consider the potential impacts of the broader market and investment portfolios, some may look to gold to diversify and hedge market risks.
On the recent webcast, 5 Keys to Striking Gold in Your Portfolio, Matthew Bartolini, Vice President and Head of SPDR Americas Research at State Street Global Advisors, warned of a number uncertainties that could continue to affect the markets.
“The road ahead may be littered with tighter monetary policy, rising interest rates, building inflationary pressures, fragile trade negotiations and geopolitical flare-ups,” Bartolini said. “Simultaneously, and perhaps unluckily, global synchronized growth which was so instrumental in boosting asset prices in the last year is dwindling.”
Looking at the global economy, Bartolini warned that economic sentiment remains well below peak levels across all regions, with the Eurozone deteriorating the most. Meanwhile, the massive U.S. fiscal policy has so far failed to materially change the growth trajectory and corporate profits likely peaked in the first quarter. The overall environment is also being shadowed by elevated macro risk from a back drop of escalating trade conflicts.
“Not surprisingly, with very few identifiable catalysts to drive risk assets higher, most assets have just treaded water in the first half of 2018,” Bartolini said.
Looking to Alternative Assets Like Gold
Given the heightened uncertainty and potential for further risks ahead, investors may look to alternative assets, like gold, to help smooth out swings in a traditional portfolio of stocks and bonds.
“Gold prices tend to increase when volatility increases – we have seen that historically and we have seen this earlier this year,” Juan Carlos Artigas, Director of Investment Research for the World Gold Council, said.
“A more sustained increase in volatility is likely to bring attention to gold,” he added.
Gold has historically helped a portfolio zig while traditional assets zag, providing investors with an asset that exhibits a lower correlation to stocks and bonds.