Portfolio Manager Credits Expected Upcoming Rate Cuts by the Fed for Gold's Impressive Rally

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In a recent interview with Bloomberg Television, Michael Cuggino, President and Portfolio Manager at Permanent Portfolio Family of Funds, shared his insights on the current state and future prospects of gold, the dollar, and fixed-income investments.

Gold’s Current Position and Future Outlook:

  • Cuggino noted that gold has been at its highest level in six months, nearing its peak in 2020. He sees gold as an attractive investment opportunity, citing several factors for this outlook:
    • The Weakening Dollar: He expects the dollar to continue declining from its recent highs, drawing a parallel to the 1990s when a strong dollar led to gold’s underperformance, followed by a significant catch-up in the subsequent decade.
    • Federal Reserve’s Policy: With the Fed possibly nearing the end of its rate hikes and potentially cutting rates, Cuggino anticipates lower or even negative real rates of return, which is generally bullish for gold.
    • Central Bank Buying: Strong purchasing of gold by central banks, particularly in countries seeking alternatives to the dollar for payment schemes, is another bullish sign.
    • Geopolitical Risks: Ongoing geopolitical tensions contribute to gold’s appeal as a financial system hedge.
    • Gold’s Resilience: Despite volatile and rising rates in the past year, gold has maintained its value well, unlike during the 2013 taper tantrum.

    Investment Strategy for Gold:

    • Cuggino advises against overweighting gold but recommends it as part of a diversified strategy. He acknowledges that in recent years, investors have moved away from gold as a physical hedge, possibly due to the rise of non-physical assets like cryptocurrencies. However, he emphasizes gold’s role as a hedge against inflation and currency devaluation.
    • He suggests that investors determine an appropriate allocation for gold in their portfolios, buying during reasonably priced periods and holding for the long term.

    Outlook on Fixed Income Investments:

    • Addressing the fixed-income market, Cuggino notes the current uncertainty and recent rate decreases. He mentions that many firms are debating when to lengthen bond durations.
    • Contrary to conventional wisdom, Cuggino’s firm is maintaining a relatively short duration (around three years) to capitalize on high short-term rates. He anticipates more volatility that may not yet be fully reflected in economic activity or interest rate movements.
    • While open to gradually lengthening bond durations, his firm is currently focused on leveraging higher short-term rates due to global economic considerations and the size of the U.S. debt.

    At the time of writing, spot gold is trading at around $2038.83 an ounce.


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