BlackRock fund manager has cut almost all gold from portfolio

BlackRock fund manager Russ Koesterich has sold almost all of his gold holdings on expectations that real rates will normalise as the global economy rebounds.

“Fourteen months ago, we had a fairly significant position in gold. Today, we’ve reduced it to almost zero,” Koesterich, the manager of the BlackRock Global Allocation Fund, said during an interview with Bloomberg Television. “If part of our view is that real rates normalize a bit, that particular commodity is unlikely to work as well as it did in the middle of 2020.”

Gold has fallen more than 7% in 2021 after surging to a record last year on a wave of investor money. The global economic rebound and high levels of inflation have raised the prospect of central banks tapering their stimulus, which would curb bullion’s appeal. The Federal Reserve may announce its timeline for reducing bond-buying at a meeting next week, and the pace of that will be crucial to gold’s fortunes.

Expectations that inflation-adjusted yields on US bonds will rise means the metal will no longer function as a hedge against equity markets, Koesterich said. He also doesn’t consider it the most effective hedge against short-term inflation.

“Rather than own an asset that doesn’t produce any cash flow, we’d rather hedge some of the near-term upside in inflation with stocks that have pricing power,” he said, citing industrials, materials and consumer sectors as examples.