(Kitco News) – While gold could struggle further in the near term as the markets adjust to a rise in real interest rates, one strategist remains optimistic that the precious metal can still do well since there are few options for investors left in an overvalued marketplace.
In particular, he suggested that millennials, who have a long investor horizon, could benefit from holding gold in their portfolios.
In an exclusive interview with Kitco News, John Reade, the chief market strategist and head of research at the World Gold Council, said that he could see gold struggling in the near term but the market still has strong long-term fundamentals. Before joining the WGC earlier this year, Reade was a managing partner at Paulson & Co.
“If we are in an environment where long-term real interest rates are going up, then that will put gold under pressure,” he said. “But if we are in an environment where global economies, facing a massive wall of debt, are unable to tolerate higher interest rates, then I suspect that interest rates won’t be going up for very long and that, I suspect, will be good for gold.”
While interest rates have a direct impact on gold, Reade said the factor that is really holding the market back is the strong competition from red-hot equity markets that remain near record levels. Reade said that as long as investors continue to move into equities, gold will lag in the marketplace.
However, this sentiment isn’t necessarily negative for gold further along the investment horizon.
The one piece of advice Reade has for investors, who are looking for alternatives in the current market environment, is too look past the recent short-term volatility and focus on a market’s growth potential.
“When I look at long-term valuations of the S&P 500, I think it is probably not the greatest place to be putting money into for the long term because at these sort of levels, your expected returns are going to be low over the next 10 years,” he said. “Similarly, I see the same thing when I look at bond markets and yields.”