Despite gold retreating 25% from its record high in January and sliding roughly 7% for the year, BlackRock Global Allocation Strategy Portfolio Manager Russ Koesterich advises investors to maintain a modest allocation to the precious metal. In a recent analysis, Koesterich highlighted that while gold has fallen out of favor as capital rotated toward AI-driven growth stocks and high-yielding assets, its long-term strategic value as a portfolio diversifier remains firmly intact.
The sharp multi-month correction in gold stems primarily from a rallying U.S. dollar—up more than 6% since its January lows—alongside rising real interest rates. Long-term inflation-adjusted yields derived from 10-year TIPS climbed from roughly 1.65% in early March to 2.20%, creating an uphill battle for a non-yielding asset. Furthermore, as momentum investors piled into gold during its record surge late last year, the metal temporarily morphed into a high-volatility momentum trade rather than a traditional safe haven, increasing overall portfolio risk.
However, Koesterich emphasizes that the structural macro drivers backing gold have not disappeared. With government debt and fiscal deficits lingering at historic levels, currency debasement risks persisting, and global geopolitical instability remaining elevated, the fundamental thesis for holding the yellow metal endures. While short-term catalysts for an immediate price rebound appear limited without a turnaround in the dollar or real rates, BlackRock maintains that keeping a modest exposure to gold provides critical tail-risk protection against long-term fiscal strain and sudden market shifts.
