BlackRock on Gold as Inflation Hedge

BlackRock has this week voiced concerns relating to the Federal Reserve’s desire for upside risk to inflation and the subsequent policies which are designed to create it. This desire is neatly summarised by Stanley Fischer’s (Fed Board of Governors vice chair) statement this month where he observed that “we may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen”.

Given this environment, BlackRock chief investment strategist Richard Turnill expressed his interest in inflation hedge instruments such as gold and inflation-linked bonds in a statement released this week. Mr. Turnill specifically cited oil prices and labour market conditions as possible contributors to inflation above and beyond the policy of the Federal Reserve. 

The statement follows existing recommendations from PIMCO (Pacific Investment Management Co.), which has for approximately three years offered a “Multi Real Asset Strategy” product; something introduced with the dedicated objective of addressing inflation risk. The Multi Real Asset Strategy contains exposure to multiple inflation-sensitive real asset classes including real estate and gold. 

PIMCO’s Joachim Fels stated in a Bloomberg interview that they “still think markets are pricing in too low a profile for inflation”. One of the metrics used to determine this is the difference between Treasury Inflation Protected Securities and 10 year note yields. The discrepancy tends to signify market anticipation for consumer prices.

In a video on the company’s website earlier in March, Chief Investment Officer Real Return and Asset Allocation at PIMCO, Mihir Worah suggested that inflation is likely to be significantly higher than the 1% that the market is currently pricing in. 

According to PIMCO, “Gold has characteristics of both a commodity that is easily stored for a long period of time and a currency whose supply is limited.”