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Gold Is Behaving Exactly ‘As Advertised’ – BlackRock - Kitco

Gold Is Behaving Exactly ‘As Advertised’ – BlackRock - Kitco

Release Date:  Friday, March 2, 2018

Gold Is Behaving Exactly ‘As Advertised’ – BlackRock - Kitco
There should not be disappointment for gold investors this year, as the metal is doing exactly what it is supposed to, serve as a portfolio hedge.

“’Gold as a portfolio hedge and as hedge in terms of signs of stress is doing exactly as advertised. It's delivering that diversification benefit, and it has done that, especially through the volatility over the last couple of weeks,’ Tushar Yadava, investment strategist for U.S. iShares at BlackRock, told AP.

 “’When you're in an environment where equities sold off, in part, because of a shock to real rates or interest rates or the inflation outlook as a whole, typically that's not the best environment for gold overall. But it's working as a great diversification benefit at the moment,’ he noted.

“’[Gold] is purely a stored value over time, so it is susceptible to inflationary trends and it is susceptible to when real rates are rising, maybe losing some of its relative attractiveness … It might not be the best relative holding over that period of time,’ he said.

“The investment strategist pointed out that inflation is looking to make a comeback and the economy is expected to grow in 2018, but noted that gold has a role to play in this scenario as well.

“’With all these factors as you're weighing them, gold is the hedge, it is the strategic holding to be a diversifier in your portfolio. And we are not viewing gold as some sort of tactical asset allocation bet. I would say, if you have this tactical view of gold, you probably have a darker view on the world,’ Yadava said.

“Another purpose of owning gold is having a safety net when geopolitical risks are on the rise, the strategist added.” (“Gold Is Behavig Exactly ‘As Advertsied’ - BlackRock.” Kitco 02.26.18)

Stock Market May Plunge 25% As Yields Soar: Goldman Sachs - Investopedia
Be on the lookout for stock market volatility as the yield on U.S. Treasury Notes reach new levels.

“Should the yield on the 10-Year U.S. Treasury Note reach 4.5%, the S&P 500 Index (SPX) is likely to end 2018 as much as 25% below its record high close on Jan. 26, per a note from Goldman Sachs Group Inc. (GS) as reported  by Bloomberg.. That would bring the S&P 500 down to 2,155, Bloomberg says, which would be 21.5% below the close on Feb. 27. While this represents a "stress test" scenario, it nonetheless is quite plausible.

“Investors should note that Goldman's base case forecast is for the 10-Year Treasury Note to yield 3.25% by year-end 2018 and 3.60% by the end of 2019, per Bloomberg and Goldman's U.S. Weekly Kickstart report dated Feb. 16. Additionally, Goldman projects that the S&P 500 will end 2018 at 2,850, which would represent a gain of 3.9% from the Feb. 27 close, and in that report they recommend that investors buy the S&P 500 and sell the 10-Year T-Note.

“With the 10-year yield now at four-year highs, the stock market is reacting to changes in the bond market, according to Bryce Doty, a senior bond portfolio manager at Sit Investment Associates, in remarks on CNBC. ‘Typically, the stock market has sold off and has created a flight to quality that has driven yields down. Everything has changed. You now have a stock market reacting to an uptick in yields and bonds rather than the other way around,’ he said.

“Doty recommends that investors hedge with short sales of bond futures contracts. This is a way to ‘turn the fear into cheap insurance,’ as he told CNBC. Former Federal Reserve Chairman Alan Greenspan and respected bond fund manager Bile Gross are among those who have warned that stocks have been propped up by artificially low interest rates engineered by the Fed and other central banks.

“A more positive outlook is voiced by Jonathan Golub, the chief equity market strategist at Credit Suisse AG. As hi told Bloomberg, ‘If rates rise from 3%, that's a good thing.’ He called 3.5% a ‘neutral level’ for stock prices, but added, ‘If yields rise from 4%, that's a problem.’ Golub believes that the recent stock market correction was driven by concerns about wage hikes and general inflation that will raise costs and depress profit margins for corporations, rather than by rising yields. He also thinks that the S&P 500 can advance by 5% to 6% even if yields rise by 50 to 60 basis points. Golub spoke to Bloomberg on Feb. 20.

“Brian Belski, chief investment strategist at BMO Capital Markets, a division of the Bank of Montrea (BMO), also thinks that rising interest rates will not hurt stocks at current levels. ‘As earnings go up, the stock market goes up, and interest rates go up, it all works together. We used to call it the circle of life,’ he told Bloomberg. Strategists at JPMorgan Chase & Co. (JPM), meanwhile, write that current equity valuation multiples of about 18 times forward earnings are sustainable as long as rates remain below 4%, Bloomberg adds.” (“Stock Market May Plunge 25% as Yields Soar: Goldman Sachs.” Investorpedia 02.28.18)

Paul Tudor Jones, Who Called The October 1987 Crash, Predicts Inflation Surge, Bond Price Plunge - CNBC
Paul Tudor Jones says there are bubbles in stocks and bonds and predicts a rise in inflation and a surge in the U.S. 10-year Treasury yield.

"’We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit,’ Jones said in an interview with Goldman Sachs sent to the bank's clients in a note Wednesday. ‘With rates so low, you can't trust asset prices today. And if you can't tell by now, I would steer very clear of bonds. … Bonds are the most expensive they've ever been by virtually any metric. They're overvalued and over-owned.’

“’I think the recent tax cuts and spending increases are something we will all look back on and regret. ... Together [they] will give us a budget deficit of 5% of GDP — unprecedented in peacetime outside of recessions,’ Jones said. ‘This reminds me of the late 1960s when we experimented with low rates and fiscal stimulus to keep the economy at full employment and fund the Vietnam War. ... We are setting the stage for accelerating inflation, just as we did in the late '60s.’’

“To trade in such an environment, the hedge-fund manager recommended investors stay in cash or buy commodities and ‘hard assets.’ He gave a ‘conservative’ 3.75 percent year-end target for the U.S. 10-year Treasury yield.

“This wasn't the first time the famed-macro trader warned investors about investing in bonds.
‘We are in the throes of a burgeoning financial bubble,’ Jones wrote in a note to clients in early February. ‘If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.’

“Other big-name investors have called out the overvaluation in the fixed income market and the perils of inflation. Warren Buffett told CNBC on Monday he believes long-term investors should buy stocks over bonds.

"’If you had to choose between buying long-term bonds or equities, I would choose equities in a minute,’ Buffett said.” (“Paul Tudor Jones, who called the October 1987 crash, predicts inflation surge, bond price plunge.” CNBC 03.01.18)

Bridgewater’s Dalio Sees 70 Percent Chance Of Recession Before 2020 – Reuters
Ray Dalio, founder of Bridgewater Associates, feels there is a relatively high chance the U.S. economy will stumble into a recession before the next presidential election.

“Dalio said the U.S. economy is not currently in a bubble. But he reasoned that it might not take long to get there and then to move on to a “bust” phase.

“Dalio said investors should not panic and need to have a sound plan. If people become scared after the market has tumbled, it is too late, Dalio said, adding that people should probably buy when they are frightened and sell when they are not.

“’The greatest mistake of the individual investor is to think that a market that did well is a good market rather than a more expensive market,’ he said.” (“Bridgewater’s Dalio sees 70 percent chance of recession before 2020.” Reuters 02.21.18)