Investors who see the Federal Reserve's hesitant stance on cutting interest rates this year as a reason to avoid investing in gold are focusing on the wrong drivers of the precious metal, according to one market strategist.

Historically, gold has been sensitive to U.S. monetary policy, as higher interest rates increase the opportunity cost of gold as a non-yielding asset. At the same time, higher rates also support the U.S. dollar, creating a second drag on gold. However, in a recent interview with Kitco News, Kathy Kriskey, commodities strategist at Invesco, said investors should pay attention to a new factor driving gold prices.

Kriskey explained that investors are turning to gold to protect themselves from the current global geopolitical and economic uncertainty. He noted that this sentiment is not new, as many older investors have long viewed gold as a way to safeguard their wealth. However, he noted that what is surprising is that many newer investors are also starting to pay attention to gold as market volatility increases.

"If you are an investor and something terrifies you and you want to hide it under your bed, you need to have gold in your portfolio," he said. "Gold is the best protection."

Kriskey said volatility in the stock market is prompting investors to reassess the health of their portfolios. He noted that disruptions in the technology sector are leading many to question stock market valuations.

Gold's recent surge to consecutive daily record highs has pushed prices up more than 8% so far in 2025. Meanwhile, U.S. stocks are up just 2.8%, and even the U.S. dollar has posted losses this year.

When asked why gold is an attractive safe haven, Kriskey pointed to the key buyers in the market: central banks looking to diversify beyond the U.S. dollar.

He cited as a prime example China's central bank, which bought gold for 18 consecutive months and then suspended purchases in mid-2024 for six months, only to re-enter the market at the end of the year.

"China's reserves are only five percent in gold, so it gives me a lot of hope that China will continue to buy, especially with these battles with Trump. They need to de-dollarize," he said. "So China, especially, but also other central banks, are providing an important floor for gold."

According to the World Gold Council, central banks bought 1,045 tons of gold last year, marking the third consecutive year in which they bought more than 1,000 tons.

While gold is an attractive safe haven asset, Kriskey noted that it has its limits. He does not consider it a good hedge against inflation. Instead, he recommended that investors looking to hedge against economic instability and inflation invest in a broad basket of commodities with an overweight in gold.

"I love gold. I use it as a benchmark, it's one of my favorite commodities. But I didn't like gold in 2021 and 2022 because it wasn't a good hedge against inflation," he said. "I think gold will be the leader this year. But as an inflation hedge, I would create a broad basket that covers three sectors: energy, metals and agriculture."

Kriskey's final piece of advice for investors is to avoid chasing gold and other commodities, such as coffee, when they reach all-time highs.

"There is a place in your portfolio for broad-based commodities for a number of reasons, but wait for a downturn, be disciplined and add layers as commodities experience their small pullbacks," he said.

Neils Christensen, Kitco