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The Case Against Dumping Bonds for Gold in 60/40 Portfolios

  • Bonds questioned as a hedge with yields at rock-bottom levels
  • Gold’s rise alongside stocks makes it an imperfect substitute
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Gold Is Moving More in Tandem with Equities, Says Xu of Credit Suisse
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Gold’s growing popularity as a bond substitute in the world’s most prevalent investment strategies may be the metal’s undoing, at least as far as using it as a hedge is concerned.

With Treasury yields at historic lows, Goldman Sachs Asset Management and Morgan Stanley are among the ranks openly questioning whether bonds still serve as an effective hedge for equities. In the traditional portfolio mix of 60% stocks and 40% fixed-income -- a bedrock principle of investing for decades -- bonds now have less room to rally and thus can’t cushion equity losses as well as in years past, the argument goes.