Investors should overweight commodities and half gold – abrdn’s Minter
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(Kitco News) – The Federal Reserve’s aggressive monetary policy stance pushed the US dollar to its highest level in more than two decades, weighing on commodity markets; however, a fund manager said that despite the recent volatility, investors should still be overweight commodities and half of that position should be in gold.
In an interview with Kitco News, Robert Minter, director of ETF investment strategy at abrdn, said that despite gold’s 9% decline this year, price action has been impressive given the situation. US dollar and bond yields. He added that gold prices should trade much closer to $1,000 an ounce than hold above $1,600.
“It’s amazing that gold isn’t lower,” he said. “Investors are finding reasons to hold gold despite the US dollar and interest rates.”
Minter added that what is holding gold back is all the investors waiting for the policies of global central banks to break the global economy. He said we could already be at a breaking point after the Bank of Japan was forced last week to intervene in its currency market for the first time since 1998.
Many market analysts have added that the Bank of England may be forced to support its currency as the pound falls to its lowest level since the mid-1980s against the US dollar.
Minter added that with deteriorating global economic conditions, it will be difficult for the Federal Reserve to maintain its aggressive monetary policy.
“The Federal Reserve has already made a policy mistake and we are just waiting to see how severe the impact will be,” he said. “A lot of people are on the sidelines waiting for something to break and when they see it does, they’ll go for gold.”
With gold, Minter is bullish on the broader commodity index. He added that a massive imbalance between supply and demand for commodities like base metals, energy and agriculture would make them relatively immune to a global recession. He explained that even if a contraction in the global economy weighs on demand for raw materials, it will not be enough to affect systemic supply problems.
“All commodities are suffering from low inventories and the low investment in future production means those inventories won’t be replenished any time soon,” he said. “Look at aluminum, there is no aluminum in the world and the same goes for copper. No matter where you look, there are supply constraints all over the world.”
Minter notes that base metal smelters, particularly in Europe, have cut output as energy prices have soared.
Aside from base metals, Minter said he remains bullish on energy prices, even though crude oil is currently trading at around $76 a barrel, down 44% from its early highs. the year, around 130 dollars per barrel.
Minter said it would take a recession of the magnitude of the 2020 COVID-19 pandemic to drive down energy demand and impact oil prices over the long term. He added that during the 2008 financial crisis, demand for oil only fell by 4%.
“It’s hard to reduce demand for oil unless you have a coordinated global lockdown, and no one is going back to that,” he said.
In the current environment, as to the size of a commodity position investors should hold, Minter said 20% would not be inappropriate.
Abrdn manages over $500 billion and a variety of exchange-traded products, including GLTR, which tracks a basket of precious metals, and SGOL, its physical gold ETF. In commodities, the investment fund manages BCD, abrn Bloomberg All Commodity Longer-Dated Strategy K-1 Free ETF and BCI, abrn All Commodity Strategy K-1 Free ETF.
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