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(Kitco News) – With gold prices struggling to maintain critical psychological level around $ 1,800 an ounce, precious metals investment firm advises investors to get past the noise and focus on the long-term diversification potential of gold.
In an interview with Kitco News, Wade Guenther, managing partner at Wilshire Phoenix, said his company’s adaptive gold-backed exchange-traded fund has increased its exposure to gold.
Guenther said that after last week’s rebalancing, the Wilshire wShares Enhanced Gold Trust (NYSE: WGLD) now has an allocation of around 96% to gold, down from around 81% from the previous month.
Guenther explained that although the gold market experienced dramatic price swings in the past month, the average market volatility has been relatively stable. The Wilshire Gold ETF adjusts its exposure to gold based on average market volatility.
“With our algorithms, we let the data speak for itself,” he said. “One of the key features of the strategy is to keep investors’ emotions out of the market and prevent them from making potentially irrational decisions.”
While Guenther is not sure how the fund will rebalance in the future, he said he sees a positive price factor for the remainder of the year.
Guenther said the most important factor for gold remains rising inflationary pressures. In May, the US consumer price index rose 5.0% for the year, the biggest jump since August 2008. He added that the scale of inflation will continue to support gold for the rest of the year.
“We did an in-house study and looked at inflation and found that when year-over-year inflation was above 3.25%, gold rose almost two-thirds over the course of the year. from the same period, “he said. “History suggests that gold can be a very good hedge against inflation.”
While mounting inflationary pressures strongly support gold, many economists note that it is also pressuring the Federal Reserve to potentially tighten monetary policy as soon as possible.
Guenther said that while there is a risk that the Federal Reserve will move sooner than expected, he does not view this as a likely scenario. He added that it will take longer to determine whether the current inflationary environment is permanent or temporary.
“The Fed has made it very clear that it depends on data and at the moment it does not have enough data to make decisions at the moment,” he said.
However, Guenther added that while the Fed is forced to act early, that doesn’t mean it will be a game-changer for gold.
He said another factor supporting gold is its appeal as a safe haven and a tool for diversification. He noted that at record valuations at this end of the economic cycle, equity markets are at significant risk of a major correction.
“More than gold, we expect higher interest rates to have a greater impact on stock and bond market valuations,” he said. “The stock markets are at record highs because silver has been so cheap for most of the last 15 years.”
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