World’s biggest asset manager says gold is failing as a hedge against inflation and stocks

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BlackRock said gold remained correlated with the dollar David Gray/Getty Images

Gold is failing as a hedge against both equities and inflation, a portfolio boss at the world’s biggest asset manager BlackRock has said.

In a blog post on Wednesday, Russ Koesterich said gold trades “with a positive correlation” with stocks, causing problems for investors who want to protect themselves against falling equity prices.

Gold has been rising roughly 0.2% for every one percentage point rise in the S&P 500,” Koesterich wrote. “True, that still represents a gap in performance, but from a portfolio construction standpoint, it means gold is a less effective hedge.”

He said the relationship was even stronger for high-growth tech stocks, with the correlation at around 0.5. “Put differently, gold and tech are increasingly moving in tandem.”

The portfolio manager for BlackRock’s $US16.4 ($21) billion Global Allocation Fund said this failure would be forgiven if gold protected against inflation. But “unfortunately, gold’s ability to hedge against inflation has been somewhat exaggerated,” he said.

“While it is a reasonable store of value over the very long-term, think centuries, it is less reliable across most investment horizons, including the most recent period.”

Koesterich, who is also a managing director at the $US8 ($10) trillion asset manager, said although inflation expectations have risen over the last few months, “gold has demonstrated little correlation with daily, or weekly moves.”

Gold has declined by around 5% over the last few months, despite expectations of inflation rising to their highest since 2008, according to a key bond-market gauge called the 5-year breakeven rate.

Koesterich said the price has struggled in the face of rising bond yields. And he said these dynamics are likely to continue to be a problem for gold, given that yields are expected to keep rising.

Yet he added that gold should “probably still be thought of as a dollar hedge” because “it is still demonstrating a strong, negative relationship with the dollar.”

The BlackRock executive said that a collapse in the dollar could therefore spur gold higher.