Gold's Downside Risks Amid Dollar Strength

Gold's inability to hold its gains above $4,100 an ounce has raised concerns about near-term downside risks. However, Russ Koesterich, Portfolio Manager for BlackRock Global Allocation Strategy, still recommends investors maintain some exposure to gold.

Koesterich notes that after a strong start to the year, gold prices have fallen around 25% from their all-time high in January and are down about 7% for the year. He attributes this decline to renewed strength in the U.S. dollar, which has risen over 6% since its January lows.

The Dollar Index (DXY) has gone up significantly due to concerns over a global energy shock, a resilient U.S. stock market, and a shift in expected Federal Reserve policy. As a result, long-term interest rates, especially real or inflation-adjusted rates, have increased, posing another obstacle for gold.

Koesterich also points out that gold's performance has been impacted by the increasing influence of AI companies on the stock market. Investors are treating gold as they would slow-growth, stable companies, ignoring it due to its lack of earnings.