Believe Higher Gold Prices Not Rising Bond Yields - Fund Manager
(Kitco News)- One international fund manager is recommending thatinvestors pay more attention to what is happening in the gold market comparedto bond markets and interest rates, as the yellow metal continues to hold itsground despite rising real interest rates.
In a recent interview with Kitco News, Ronald-PeterStoeferle, fund manager at Incrementum AG and author of the annual In Gold WeTrust report, said, he is more inclined to believe that higher gold prices willoutlast uptrend in real bond yields.
Stoeferle comments come as gold remains caught in the middleof a well-established trading range. June gold futures last traded at $1,349.70an ounce, up 0.13% on the day.
“There are a lot of inflationary pressures with rising oilprices and a weaker U.S. dollar but what I see is massive deflationary risksbecause of quantitative tightening,” he said. “Quantitative tightening is themost underestimated risk in the marketplace.”
Stoeferle explained that the Federal Reserve’s plan toreduce its balance sheet along with its commitment to raise interest rates willlead to tighter credit conditions, which could ultimately push the U.S. into arecession sooner rather than later.
“I think the gold market is looking ahead and discountingthe idea that this rate-hike cycle will be over a lot sooner than most peoplethink,” he said. “I don’t believe there will be three to four rate hikes in thenext couple of months.”
Although the U.S. economy has shown some resilient growth --most recently, U.S. retail sales increased 0.6% in March, as consumers boughtmore new vehicles than expected -- Stoeferle said that the data is not asstrong as one might expect under the surface. The latest information also showed thatcore retail sales grew in line with expectations.
Stoeferle added that growing market volatility andgeopolitical uncertainty, it wouldn’t take much to push the U.S. economy offits expected growth track.
“Markets are priced for perfection and I think conditionsare far from perfect,” he said.
If you want more proof than just the gold market, Stoeferlesaid that investors should also look at the price action the U.S. dollar. Heexplained that higher real yields should be bullish for the U.S. dollar;however, the greenback has struggled to hold its own against a basket of globalcurrencies. This does not bode well for the U.S. economy as it is exceptionallyinflationary, he said.
The U.S. Dollar Index last traded at 89.48 points, down0.32% on the day.
“Investors are running out of safe-haven,” said Stoeferle. “Wehave seen the U.S. dollar weaken, equity markets fall and bond yields rise. Theonly asset that looks attractive right now is gold.”
Looking at prices, Stoeferle said that he is confident thatprices will eventually break its current trading range. He noted that morevolatility propels gold above $1,400.
“As soon as we start to see disappointing economic data, theFederal Reserve will be forced to reverse course on its monetary policy andthat is when gold will take off,” he said. “Right now gold is quietlypositioning itself for a long-term bull market.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.