Now Is The Time To Get Defensive With Commodities And Gold - Alexander Capital
(Kitco News)- Despite recent resiliency in equities, the market ismoving closer to a turning point and one quantitative investment strategistsays now is the time for investors to get a little defensive and addbroad-based commodities to their portfolios, including gold.
In an interview with Kitco News, Scotty George, chiefinvestment strategist at Alexander Capital, said that his firm is currentlyoverweight commodities, which included a small position in gold as the firmgets more defensive in the marketplace.
“Right now our basic material portion is well over 10% ofour overall asset allocation,” he said. “We are probably more invested indefensive equities, including gold, than we have been at any time since 2008.”
George said that right now, the firm’s focus is oncapital preservation as he sees signs that the equity markets are extremelyovervalued. He added that markets are in the midst of a transition and alongwith the firm’s defensive positioning, it is also holding about 24% of itsassets in cash that is waiting to be deployed.
“We are raising more cash as the market peters at thetop. We are going to keep our powder dry until we see a capitulation and thenwe will have sufficient resources to go in and complete our rebalancing,” hesaid. “We are not at the end of the market top just yet.”
As market sentiment is starting to shift, George saidthat growing geopolitical risks could be the spark that ignites the nextdownturn in equities. His comments come as concerns grow over the threat of aglobal trade war as U.S. President Donald Trump levies tariffs on steel andaluminum from Mexico, Canada and the European Union. All three regions havesaid they are going to implement tariffs against the U.S. in retaliation.
“One of the things I was taught from a great mentor isthat changes in market secular conditions, from bull to bear, don’t usuallyoccur organically, they occur politically. I think what is going to take thismarket down is either an irrationality or a failure to understand politicalrhetoric,” he said.
While a downturn in financial markets will also impactcommodity markets, George said that he is looking past any near-term weakness.He added that growing demand for raw commodities will ultimately be bullish forthe sector.
He noted that not only will commodity markets see growingdemand in the years to come, but consumers will also have to deal withdwindling supply of finite resources.
“What’s occurring in the short term is the imposition ofthe political conversation on the long-term fundamentals of commodities andtangible assets,” he said. “We are trying as best we can to ignore what’soccurring in monetary policy in the Europe Union and what is occurring infiscal policy in the United States.”
Looking at the gold market, while some investors havebeen frustrated with gold’s inability to break above $1,400 an ounce, Georgesaid that he hasn’t been disappointed at all with the price action. He notedthat gold is building a base, which has allowed investors to increase theirexposure to the safe-haven asset.
“It’s quite exhilarating to think that we’ve had thismuch time to accumulate an asset that has so much potential,” he said.
George said that he sees the potential for gold prices tomove higher through the long term as global market volatility picks up asinvestors question the health of the global marketplace. He added that heprefers to hold commodity equities more than the raw commodity.
Currently, gold futures continue to struggle to holdgains above the critical psychological level around $1,300 an ounce. August goldfutures last traded at $1,299.10 an ounce, up 0.14% on the day.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.