(Kitco News) – Investors are beginning to treat gold less as a tactical play and more as a strategic allocation as government debt levels continue to spiral higher, according to Christopher Hamilton, head of client solutions, Asia Pacific at Invesco.
In an interview with CNBC on Thursday, Hamilton was asked what he thinks is behind the broad-based selloff in the global bond market.
Hamilton pointed to two major factors that are pushing global yields higher.
“One, at least from a U.S perspective, you see fairly resilient economic growth,” he said. “However, you also see concerns about inflation, and a re-emergence of the term premium we've seen off and on over the last 18 months, looking at some of the fiscal concerns coming out of the US.
Hamilton said real yields are also rising quite substantially, and productivity increases are part of that. “I also think [there’s] this emerging term premium, and some of the fiscal concerns drive that too, because gold has also simultaneously increased, so that's driving a lot of the big theme, inflation, oil, I think all of this is pushing rates upward, as hard as maybe the Treasury's tried to push them down lately.”
“That's really where I see rates going, and some of the confluent factors I see driving that.”
Hamilton was then asked if gold’s price appreciation was being driven by a loss of investor confidence in central banks and governments as global debt continues to rise.
“We consider gold definitely a fiscal and monetary shock absorber,” he replied. “I think there's also a much longer-term strategic play for gold in portfolios. We think about gold as almost like a walking proxy vote on faith in the monetary system, and we think with governments’ debt balances, and just the general fiscal situation, particularly from developed countries, that gold's going to become a more attractive asset class due to its store of value.”
Hamilton said that investors have traditionally treated gold as more of a tactical play in their portfolios. “Now we're having a lot of conversations about using gold in a strategic asset allocation, permanently embedding it into your portfolio framework, due to these concerns.”
“Now, it doesn't necessarily mean those can't abate at times,” he acknowledged. “They can, but I think the fears about those terms re-emerging are warranting that more strategic placement of gold in portfolios.”
According to Invesco’s quarterly gold outlook from July, despite spiking energy prices boosting inflation and rate hike expectations, central bank demand will still help gold finish 2026 on a positive note.
After gold posted its worst quarter since Q2 2013 when the price fell by 22.7, they cautioned that downside risks to the gold price remain.
“The next few months could be pivotal for gold, as we watch to see how the Fed reacts to inflation – and whether inflation is sticky or comes down with lower oil prices – and if the US Dollar firms further versus other major currencies,” they said. “Higher interest rates and a stronger USD are generally negative for gold, as the former increases the opportunity cost of holding a non-yielding asset and the latter makes gold more expensive for international (non-US) investors.”
But despite the rise in inflation expectations, the potential for rate hikes, and the yellow metal’s recent weakness, Invesco maintained a constructive outlook for gold in the second half of 2026.
“[W]e believe much of the structural support for gold remains largely intact,” the authors said. “Central banks look set to continue buying gold to diversify their reserves. The World Gold Council (WGC) reported that a record 45% of central bankers responding to its latest survey said they expected to increase their gold reserves in the next 12 months, while 89% expect gold central bank reserves to increase globally over the coming year.”
They noted that this structural support was reflected in their recent Global Sovereign Asset Management Study, “in which a majority of central banks reported increasing gold allocations over the past three years, with concern over global volatility, inflation protection, and geopolitical uncertainty now among the leading drivers of ongoing gold purchases.”
But while central bank demand is largely price-insensitive, they said, investment demand is sensitive to price momentum. “Rising prices may attract flows into an asset, but falling prices can sometimes encourage selling, particularly when an investor can lock in a profit and needs to access liquidity to reallocate elsewhere,” the authors wrote. “Retail purchases of coins and small gold bars were a strong source of demand throughout the long-term gold rally, and it will be important to see how they respond to the correction.”
“For retail and professional investors, the case for including gold in a portfolio is not based on a single consideration, such as using it only to hedge geopolitical risk, although historically gold has performed this role relatively well,” the Invesco analysts concluded. “Rather, gold can be a useful diversifier as it tends to have low correlation to most assets, especially equities. Gold is a unique asset as it has no issuer, no credit risk, and a long history as a store of value when confidence in currencies, institutions, or market plumbing is questioned.”
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
