Gold failing as equity hedge, warns BlackRock

New Delhi, March 11 : Global investment manager BlackRock Inc has warned investors of the declining effectiveness of gold as an equity hedge.
In a blogpost, Russ Koesterich, portfolio manager for BlackRock’s Global Allocation Fund, said: “Gold’s underperformance might be more tolerable for investors, except for the fact that it has also been failing as an equity hedge.” He noted that gold continues to trade with a positive correlation and beta to equity prices. Looking at weekly data, gold has been rising roughly 0.20 per cent for every one percentage point rise in the S&P 500.
From a portfolio construction standpoint, gold is a “less effective hedge”, he added.
Koesterich noted that during the past three months, gold has declined by roughly 5 per cent. The yellow metal has struggled as real yields — interest rates after inflation — rose from historic lows. Since January, real 10-year yields have risen by around 15 basis points (bps). Consistent with history this has proved a headwind for gold.
He was of the of the gold’s lacklustre performance and rising correlation with stocks might still be forgiven if it were fulfilling another role, that of an inflation hedge.