He notes that some parts of the portfolio could benefit from rising rates because such an increase signals an economic expansion, which often bodes well for gold and commodity prices. And the trough for commodities could bottom out if demand for energy and industrial commodities accelerates.
The prospect for rising rates and economic growth came into clearer focus soon after the U.S. presidential election as Treasury yields rose and the possibility of an expansive new fiscal policy rekindled inflation expectations. There’s also the question of who will replace Fed Chair Janet Yellen when her term expires in February 2018. Given Trump’s harsh criticism of Fed policy during her tenure, he might appoint someone who is more likely to raise interest rates.
No matter what happens with a new administration, interest rates or the stock market, the fund will no doubt bypass all of it by hewing to its target allocations. Twenty percent of its assets are earmarked for gold, and another 5% is in silver. Cuggino sees the allocation as an insurance policy to anchor more traditional stock and bond assets and as a way to provide inflation protection. The fund holds both metals physically in bullion and coins rather than in ETFs, even though a number of ETFs closely track their prices. “We’re institutional investors, so we don’t need to have a middleman of an ETF involved,” he explains.