Image Source: Bloomberg
In a notable commentary on the evolving investment landscape, Russ Koesterich, Managing Director of BlackRock’s Global Allocation Team, highlights a compelling tactical opportunity for gold amid the current low market volatility. Despite gold historically being seen as a hedge during periods of uncertainty, recent conditions indicate a nuanced positioning for the precious metal as equity market volatility remains unusually subdued but may soon rise. Koesterich’s insights come as the S&P 500 rebounds strongly with stocks up sharply year-to-date, yet volatility, measured by the VIX index, trades near its lowest levels since February 2025.
Key Points to Note:
Gold's investment appeal persists even if prices surpass $3,600 per ounce, indicating strong diversification and store-of-value attributes.
Current equity market volatility has collapsed with the VIX index below 15, suggesting calm but potentially fragile investor sentiment.
Historical data shows that even modest upticks in volatility tend to favor gold’s performance relative to stocks.
Koesterich recommends a strategic gold allocation of 2-4% in portfolios, with the potential for increasing to the higher end of this range in the short term due to expected seasonal volatility.
Gold outperforms the S&P 500 by about 1% on average during weeks when volatility rises; spikes of 20% or more in the VIX see gold returns improve by 3% or higher.
The firm sees this period as a window for tactical gold accumulation as an insurance trade against a probable rise in market jitters.
Understanding the Tactical Opportunity
The market behavior in 2025 has been turbulent with spikes in volatility early in the year reaching multi-year highs around March. However, the most recent trend is toward an unusual calmness with volatility indices sinking to annual lows. This tranquility masks potential risks as historically, volatility tends to increase in the fall, a season known for market adjustments.
Koesterich stresses that while confidence in equities remains strong—exemplified by the advancing S&P 500—investors might be underestimating rising risks. The current environment presents a paradox where investors have reallocated heavily into U.S. equities since May for the best returns, yet they are not sufficiently hedging their accumulated gains. Gold, in this context, presents an effective hedge in anticipation of rising volatility.
Historical Performance Link to Volatility
Over the last 15 years, the relationship between gold performance and market volatility has been consistent. Gold tends to outperform stocks in weeks or months when the VIX index rises, even modestly. For instance, a typical 20% surge in implied volatility correlates with an average 3% weekly excess return on gold, while rare significant volatility spikes of 50% or more correspond with gold outperforming by over 5%.
This data underlines gold’s role beyond just a long-term store-of-value, positioning it as a tactical asset that can shield portfolios from downside risks in times of escalating market stress.
Strategic Allocation Recommendations
Koesterich advocates maintaining a strategic allocation to gold of around 2-4% within diversified portfolios. The rationale combines long-term fundamentals—such as concerns over government deficits and questions about currency stability—with short-term considerations of seasonal volatility cycles.
He suggests that investors might consider increasing allocations towards the upper boundary of this range as autumn approaches, aligning with historical trends of rising volatility during this period. Such positioning is projected to enhance portfolio resilience without sacrificing long-term growth potential.
Additional Considerations
Despite gold’s effectiveness as a hedge, Koesterich cautions against viewing it as a day-to-day protector against stock market moves, given recent correlations showing gold moving somewhat in tandem with equities.
Central bank gold purchases, notably by China, alongside mounting U.S. fiscal deficits, continue to support gold demand and underpin its strategic appeal.
Volatility across asset classes—stocks, bonds, currencies—remains at cycle lows, indicating a general lack of hedging appetite that could reverse rapidly.
In summary, BlackRock’s Koesterich presents a timely argument for investors to tap into gold’s tactical potential. With market volatility at a low ebb and poised to rise seasonally, increasing gold exposure now could provide valuable insurance for portfolios navigating an uncertain landscape as 2025 progresses.
Source: BlackRock, Futunn
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