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BlackRock: Investors should be nervous; backs buying gold

American flags fly above the BlackRock Inc. logo, displayed at the company's offices in New York on Oct. 14, 2013.

Craig Warga/Bloomberg

Investors should probably be a little more nervous, according to one BlackRock Inc. money manager.

Stocks have rallied to records amid signs of stabilization in China's economy and bets that President Donald Trump will boost U.S. infrastructure spending, roll back regulations and cut taxes. While the stock surge and below-average volatility show investors are more optimistic, markets are underpricing global political risks, said Russ Koesterich, who helps manage the $41-billion BlackRock Global Allocation Fund. He recommends gold as insurance.

Looming elections in Europe and political uncertainty in the U.S. are among developments that could shift investor sentiment, Mr. Koesterich, said. Adding to the threat is the potential impact of Britain's exit from the European Union and a debt crisis in Greece. Such concerns have helped boost haven demand for gold, which has climbed almost 8 percent this year after posting the worst quarter since 2013.

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"That hiding political risk is not reflected in markets," Koesterich said in a telephone interview Thursday. "People are not that nervous, and there are things that could go wrong, particularly when you think about all of the political risks. That adds to the argument for having gold in a portfolio."

In the U.S., stocks posted the longest rally in three years, inflation indicators have risen and the labor market is strengthening. That's happening at the same time that a gauge of global economic policy uncertainty climbed to the highest on record in January.

"Some of this rally has been based on the fact that investors expect some stimulus from Washington in the form of tax cuts and potentially fiscal stimulus as well," Mr. Koesterich said. "What happens if it doesn't come?" While "there will be some stimulus, the timing, the form and the magnitude are still very much uncertain."

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