Gold is a good hedge right now

In the tail end of an economic cycle, with interest rates tipping down, and the U.S. economy slowing, investors could find a hedge in gold, says Harvest Portfolios Group

Ruth Saldanha 18 January, 2019 | 6:00PM
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Ruth Saldanha: In times of stock market volatility investors often look for a hedge. Could that hedge be gold? Morningstar analysts believe that usually gold is a decent hedge to U.S. economic cycles given the low historic relationships between the two. There are several near term factors that will impact gold including interest rates and the possibilities of trade wars. In this environment the Harvest Portfolio Group has launched a new gold exchange traded fund. Michael Kovacs, President and CEO of Harvest Portfolio Group is with us today to talk about it. Michael, thank you so much for joining us today.

Michael Kovacs : Thank you for having me.

Saldanha : So why a gold fund right now.

Kovacs : Well, from our opinion we’re in a very late innings of this economic cycle and whether you think there is another period of time to go or not. We find that we're late in the cycle and that at this point in time having a defensive positioning in an asset like gold will serve investors very well. Because usually when you are getting into a time like this. You'll see interest rates eventually start to tip down and you'll see the U.S. economy slow down and that’s when you want to have a hedge in a product like gold.

Saldanha : What is your outlook for gold both in the short term as well as in the slightly longer term.

Kovacs : Well in the short term its anybody's guess really, I mean gold's been trading between sort of $1,180 at the lower end of the band and $1,400 at the higher end of the band, it's around $1,290, $1,300 today. We expect to see that trading continue in the band. It really depends on what happens economically around trade wars around, if the U.S. economy slows down how much it slows down, if rates come down quite a bit more, we could see gold go quite a bit higher. But in the short term we suspect that this trading range will continue.

Saldanha : Some of the gold mining companies have seen significant amount of consolidation especially over the past month or two. Do you expect this to be a start of a trend and do you expect to see more consolidation in gold mining?

Kovacs : We do. What's surprised us is that since we've just put together the idea of the fund over the last few months, we've seen two large consolidations, the Barrick and the Newmont acquisitions. We expect we'll see more of these types of acquisitions as time goes on. What we may see is the large producers looking at some of the intermediate producers, looking at some of the smaller producers that have great properties. But obviously it leads to more efficiencies, it leads to lower cost for these organizations.

Saldanha : Harvest just launched a new gold ETF can you tell us more about that fund please.

Kovacs : Yes, it's a passive index of the top 20 gold producing companies and we've basically chosen the top 20 by market cap. So you have anywhere from 130 to 150 companies in the universe of gold miners, but what we’ve chosen to do is strictly focus on the top names. The consolidators, the companies that have positive cash flows at these levels, that have profitable operations, great properties around the world. So what we want to give investors is a chance to focus on a portfolio of just those top companies at what we believe is a very good cost structure of 40 basis points.

Saldanha : Thank you so much for joining us with your perspectives Michael.

Kovacs : You are welcome. Thank you.

Saldanha : From Morningstar I am Ruth Saldanha.

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Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Follow her on Twitter @KarishmaRuth.


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