Ignore Gold's Shot-Term Momentum And Play The Long-Term Trend - State Street Global Advisors
(Kitco News)- The U.S. Dollar has pushed to itshighest level since mid-January, which has driven gold prices to a one-monthlow, but one gold market analyst said that it is essential for investors to payattention to the long-term trend.
George Milling-Stanley, head of goldinvestments at State Street Global Advisors, the marketing agent of the largestgold-backed exchange traded fund, SPDR Gold Shares (NYSE: GLD), said that theU.S. dollar has been in an 18-month downtrend and still has a long way to go tosignal a significant momentum shift.
At the same time, gold prices havebeen in an uptrend since late 2015 and the rally has only accelerated. He notedthat so far this year, the SPRD gold trust has seen its holdings grow by 33tonnes this year. The net asset value of GLD has increased to $2.1 billion,with $1.4 in inflows since the start of the year.
A big chunk of GLD’s growth has comewithin this past month, with inflows in April totaling 25 tonnes, as of April25.
Milling-Stanley’s comments come as theU.S. Dollar Index last traded at 91.47 points, up 0.33% on the day; meanwhile,June gold futures last traded at $1,318.30 an ounce, down 0.34% on the day.
“Gold investors are paying a lot moreattention to long-term trends than this short-term momentum,” he said.“Investors are a lot more interested in diversifying into safe-liquid assetsand gold is the first real liquid asset.”
Not only has gold benefited from a downtrendin the U.S. dollar, but Milling-Stanley said that falling equity and bondmarkets also make gold an attractive investment. Milling-Stanley’s commentscome as the U.S. 10-year bond yields pushed above 3% for the first time since2014. Bond yields run inversely to prices.
“Investors are asking themselves wheredo they go when both bond and equity markets are falling. Gold is the onlyasset left and that is what investors are starting to recognize” saidMilling-Stanley. “Nobody is about how great equities are going to be this year.They are all asking themselves how bad it is going to get.”
While equities have seen a strongfirst-quarter earnings season with three-quarters of the companies in theS&P 500 Index reporting stronger-than-expected earnings, Milling-Stanleysaid that this is window dressing.
Most companies have used a windfallfrom the government’s historic tax cuts, which came into effect in January, tobuy back shares, stock prices. Milling-Stanley added that this is notsustainable as the economy starts to struggle.
“The tax cuts are not being used toincrease productive capacity and that is what is needed to drive sustainablelong-term growth,” he said.
With the current market conditions,Milling-Stanley reiterated his call that gold prices will eventually push past$1,400 before the end of the year.
He added that he is not expecting tosee a significant quiet period for gold this year. Geopolitical uncertainty andfurther weakness in equity markets should continue to support gold pricesthrough the summer months.
“Ithink this year when people start to sell in May they are going to start takingmore defensive positions and that will support gold prices,” he said.
By Kitco NewsFor Kitco News
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