BlackRock sees long-term value in gold despite short-term pressures

Gold prices have failed to sustain levels above $4,100, facing downward risks in the short term despite intermittent escalations and de-escalations in U.S.-Iran tensions and ongoing geopolitical uncertainties. However, BlackRock, the world's largest asset manager, has issued a notable assessment, advising investors to continue including gold in their portfolios for long-term strategic value.

Russ Koesterich, Global Allocation Strategy Portfolio Manager at BlackRock, noted that investors have recently focused on strong corporate earnings and cash flows, causing gold to take a backseat. Despite this shift, he affirmed that BlackRock's long-term investment thesis for gold remains unchanged. Gold has retreated approximately 25% from its historic peak in January, and its year-to-date decline stands at about 7%. Koesterich observed that gold has become an asset that adds risk to portfolios rather than providing protection against downside risks.

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Gold has become an asset that adds risk to portfolios rather than providing protection against downside risks.

Koesterich identified the strengthening U.S. dollar as a primary reason for gold's sharp correction. The Dollar Index (DXY) has risen over 6% since its January lows, supported by concerns over the global energy shock, the robust performance of U.S. stock markets, and changing expectations regarding the Federal Reserve's interest rate path. Concurrently, rising long-term bond yields, with 10-year real yields increasing from approximately 1.65% in early March to 2.20%, have exerted significant downward pressure on gold prices.

Another factor contributing to gold's pressure is the shift in investor focus towards artificial intelligence-themed stocks. Koesterich pointed out that market returns are increasingly concentrated within a narrow group of AI companies. He stated, "Gold, an asset that does not generate earnings, is largely overlooked by investors compared to slowly growing and stable companies." Despite these short-term pressures, Koesterich reiterated that gold continues to play a crucial role in diversified investment portfolios due to persistent high public debt, budget deficits, currency devaluation risks, and geopolitical uncertainties.

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Gold, an asset that does not generate earnings, is largely overlooked by investors compared to slowly growing and stable companies.