(Kitco News) – The gold market has fallen through initial support at $1,850 an ounce; however, one portfolio manager said that the precious metal remains an attractive safe-haven asset as market volatility grows.
In a telephone interview with Kitco News, Steve Land, vice president and portfolio manager of Franklin Templeton's Franklin Gold and Precious Metals Fund, said that although gold has struggled to attract any consistent bullish momentum, it continues to outperform equity markets.
Since the start of the year, the S&P 500 has fallen 16% as the index drops to 4,000 points Tuesday. Meanwhile, even with Tuesday's selling pressure, gold prices are roughly neutral for the year. June gold futures last traded at $1,836.70 an ounce, down more than 1% on the day.
“The big headwind had been the strong U.S. dollar. When you consider that, I think gold has actually been performing reasonably well,” he said. “Gold's role in times of crisis and uncertainty is to maintain and preserve value, which it is doing.”
Land said that although gold's performance has been disappointing in recent weeks, he sees the price action as a consolidation phase following a strong first-quarter performance. He added that investors will continue to see gold as a vital diversification tool and inflation hedge.
“There's no question that there are a lot more moving pieces in the global economy than there have been in a long time. Gold's, low correlation to markets, means it's someplace investors can hideout to a degree,” he said.
Although the U.S. dollar remains near its highest level in 20-years, driven by rising bond yields and interest rates, Land said that investors need to keep paying attention to the broader financial landscape.
The Federal Reserve has embarked on an aggressive tightening cycle with markets looking for interest rates to rise to 3% by the end of the year; however, Land said that while interest rates are rising, so is inflation.
“Consumer purchasing power continues to decline and that is an attractive environment for gold,” he said.
Land explained that while the Federal Reserve is raising rates aggressively this year, there is still not much they can do to bring down inflation. He noted inflation continues to rise primarily because of supply chain issues, which have intensified because of Russia's invasion of Ukraine.
“It's good that we're finally having an honest conversation about what inflation looks like. The real struggle is that a lot of the inflationary pressures are structural; they are less related to the economy and more related to supply chain bottlenecks,” he said.
However, Land added that the Federal Reserve is taking the necessary steps and slow down demand and give the global economy time to work through these supply constraints.
“The Fed doesn't want to get in front of inflation, but they want to hold the line because it's going to take time to resolve these structural issues,” he said.
In this environment, Land said that while real rates will continue to rise, they will remain low, which is still supportive for gold.