BlackRock maintains its stance that gold is not the best inflation hedge
(Kitco News) -Gold prices rocketed to a five-month high after U.S. inflationdata rose to its highest level in 31 years; however, according to the world'slargest asset management firm, this still might not be enough to keep a bid inthe precious metal.
In a recent report published before Wednesday's Consumer PriceIndex data, Russ Koesterich, managing director and portfolio manager forBlackRock's Global Allocation team, reiterated his stance that gold is not agreat inflation hedge.
"As I discussed last winter, gold is struggling withvolatile real rates, a firmer dollar and declining efficacy as a hedge. Fornow, I would look elsewhere to hedge inflation and maintain a lower exposure togold," he said in the report.
"While gold holds its own over the very long term, it is nota particularly reliable hedge outside of multi-decade horizons. For most of theyear, gold has exhibited virtually no correlation with daily or weekly moves inlong-term inflation expectations," he added.
He noted that inflation has been running hot for most of 2021,and gold prices have struggled to find consistent bullish momentum. Even aftergold's impressive rally Wednesday, prices are still within Koesterich's expectedrange. Down from their session highs, gold prices last traded at $1,851 anounce, up more than 1% on the day.
Along with gold, Koesterich said that he also doesn't see Bitcoinor cryptocurrencies as an inflation hedge.
"While rising adaptation of cryptocurrencies may continue topush prices higher, with extreme volatility and a short track record, Bitcoin'svalue as an inflation hedge is unclear," he said.
As to what is a good inflation hedge, Koesterich said thatinvestors should stick with cyclical equities.
"While gold has not kept up with rising inflationexpectations, many cyclical industries - including energy, materials and selectconsumer names - have," he said.
However, there is also one silver lining. If investors aredetermined to hedge inflation with precious metals, the BlackRock portfoliomanager said that silver could be the better option.
"Silver has significant industrial uses and has recentlytended to co-move with near-term inflation expectations. While not a"silver bullet," silver can be part of the arsenal," he said.
In September, Koesterich, in an interview with Bloomberg, saidthat BlackRock sold most of its gold holdings on expectations that real rateswill normalize.
Following October's CPI reading, which showed annual inflationrising 6.2%, real interest rates fell to a record low.
By Neils ChristensenFor Kitco News
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