Plus, he added, commodities historically over the long term have offered diversification from equities.
“When there’s a shock to the upside, commodities outperform stocks and bonds by a wide margin,” Love said.
For now, though, several bearish aspects are weighing on commodities such as the slowing global economy, negative impacts from the trade war and stubbornly low inflation (commodity prices traditionally benefit from inflationary environments).
Those factors have given a boost to the price of gold, which is up about 11% so far this year. Gold on the Comex market ended trading on Friday at $1,426.70 an ounce.
But Love isn’t convinced that gold is the way to go from an ETF investment standpoint.
“In terms of opportunities and risk, I would look at broad commodities versus gold,” he said. “The individual commodities should be used only tactically—gold, perhaps being the one exception. Gold bridges commodities and currencies in that it functions as both. It’s definitely a fear asset. It’s been in the news a lot lately.”
He disagrees with prognosticators who say gold could reach $2,000 by year end.
“$2,000 for gold by year end would be extraordinary; that’s about 40% up from where we are right now,” Love said, adding that gold could shoot higher if a financial catastrophe emerges quickly.
But he said investors should consider a couple of factors. “Gold only has about half of the correlation to inflation that a broad commodities basket has,” Love said. “An equally-weighted basket of 30 or so of the most-liquid commodities has more than a 60% correlation to inflation whereas with gold it’s only about 30%.
“So I would look at broad commodities rather than just gold alone in sourcing your exposure to potential increases in inflation and in terms of diversification of traditional asset classes,” he added.