Has Gold Lost Safe-Haven Appeal? Portfolio Manager Otavio Costa Says That's 'Backward-Looking And Dismissive' Thinking

Zinger Key Points
  • Spot gold was trading 0.28% lower during Friday Asian trade at $1,902 per ounce.
  • Costa believes it's early stages of gold re-emerging as the ultimate haven asset.
  • By the end of this decade, conventional 60/40 portfolios may become more balanced with the inclusion of asset classes like gold, he said.

Otavio Costa, a portfolio manager at Crescat Capital, does not agree with the notion that gold has ceased to be a good hedge during bad times and believes the yellow metal is in the early stages of its re-emergence as a safe haven asset.

Costa highlighted his disagreement citing a Bloomberg opinion piece by George Mason University professor Tyler Cowen which argued that the yellow metal has become a cyclical asset and is "no longer a useful harbinger of social and economic collapse."

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"It is completely backward-looking and dismissive of what appears to be the early stages of gold re-emerging as the ultimate haven asset. Given the dire levels of global debt, foreign central banks are compelled to prioritize enhancing the quality of their international reserves to support their monetary systems," Costa said in his tweet.

The expert pointed out that central banks function similarly to traditional businesses that require high-quality assets on their balance sheets to establish financial stability.

"Ultimately, other notable institutions such as pension and endowment funds will likely follow suit. By the end of this decade, conventional 60/40 portfolios will probably become much more balanced with the inclusion of other asset classes like gold," Costa said.

Central banks have been increasing their holdings of gold in their reserves in recent times — they added a whopping 1,136 tonnes of the yellow metal to their stockpiles in 2022, which is by far the most of any year in records going back to 1950, said a Reuters report published in February, citing the World Gold Council.

Price Action: Spot gold was trading 0.28% lower during Friday’s Asian trade at $1,902 per ounce in the wake of strong U.S. economic data and Federal Reserve Chair Jerome Powell asserting there need to be two more rate hikes to bring inflation under control.

"Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go," Powell had said.

The SPDR Gold Trust GLD fell 1.4% in the last five days while the iShares Gold Trust IAU lost 1.39% during the period.

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