According to Columbia Business School professor and QuantStreet Capital partner Harry Mamaysky, gold is still a highly under-allocated asset in investor portfolios. Mamaysky’s analysis, published in Advisor Perspectives, compares the investment prospects of gold to Bitcoin, highlighting gold’s value as a store of wealth and inflation hedge, along with its ease of trade through liquid ETFs. Despite the recent surge in Bitcoin’s price, Mamaysky argues that the Fed’s upcoming easing cycle in 2024 could significantly boost the appeal of gold as an investment.
Mamaysky delves into historical data on the Fed funds target rate to analyze the impact of previous easing cycles on gold futures prices. He points out that in the two years following a Fed easing period, gold futures prices generally increased, with the average rise being close to 20%. Looking ahead to the potential start of the Fed easing cycle in 2024, Mamaysky suggests that if history repeats itself, gold could perform well over the next year or two. He also introduces QuantStreet’s machine learning-based forecasting model, which predicts an 8.46% return for gold in the coming year.
Considering the positive trend in gold prices over the past year and its low correlation with most risk assets, Mamaysky recommends a gold exposure in all risk-targeted portfolios based on QuantStreet’s asset allocation framework. He underscores the significance of the Fed’s easing cycle as a potential catalyst for gold’s growth and the changing landscape of gold valuation due to the introduction of liquid gold ETFs. Mamaysky ultimately encourages a tactical allocation to gold in investor portfolios, despite the current high gold-to-CPI ratios, based on the compelling investment case for the precious metal.