There's a compelling reason for investors to hold gold in their portfolios, Joseph Foster of Van Eck International Investors said Wednesday.
"Gold reacts to financial stress, and the markets are convinced that there's no financial stress to look forward to. They're convinced the Fed will taper, eventually reduced their QE and things will be fine," he said.
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"Despite that, I think we still live in an environment where acute financial stress could come back into the markets at any time, and that's why we recommend or encourage people to have some allocation to gold if and when that happens."
Gold declined $4.70 to end the day at $1,225.10 per ounce.
On CNBC's "Fast Money," Foster noted the precious metal's recent trading behavior.
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"The market has bifurcated recently, and we've seen after the gold collapse in April, we saw just unprecedented physical demand from around the world," he said. "At the same time, institutions were liquidating gold into ETFs and on Comex, etc."
Foster cited fear as an important reason for the pain trade in gold.
"I think there's a lot of fear in the market right now," he said. "I think there's genuine fear amongst the retail crowd and others as well, and they want to see some signs that things are turning around in the gold market. And so far we haven't seen that."
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Foster also said that gold mining stocks could be presenting an opportunity, even though a continued sell-off in gold could drag them lower.
"But if the gold price holds in there or even increases, you know, you wait for that sell-off, and that's the best time to be buying these gold stocks is when you see that divergence and then you step in and buy these things," he said.