Equity-Market Correction Needs To Be Bigger For Gold To Benefit - Murenbeeld
(Kitco News)- Equity markets continue torecover from Monday’s flash crash and while volatility is back, it would take amuch bigger correction to boost gold and precious-metals prices on a safe-haventrade, according to one commodity analyst.
In a telephone interview withKitco News, Martin Murenbeeld, president of Murenbeeld & Co., said thatwhile the drop in equity markets was shocking -- the Dow Jones IndustrialAverage at one point Monday was down 1,600 points - it fundamentally didn’tchange anything for financial markets.
He added that many analysts andinvestors were expecting to see a correction at some point. “Well now they gotit,” he said.
Murenbeeld added that even afterMonday’s correction, equity markets were holding well above their 200-daymoving average, which is also represents a major long-term trendline. Equity makets have continued to push off Monday's lows with the Dow Jones last trading at 25,178 points, up 1% on the day. At the same time gold prices have struggled to hold on to important support levels; April gold futures last traded at $1,322.90 an ounce, down 0.50% on the day.
Although gold has not benefitedfrom recent equity-market weakness, Murenbeeld said that the yellow metal has held relativelysteady, and remains a “refuge” for some investors. He added that gold is notseeing more of a benefit because Monday’s correction has not shiftedexpectations for the Federal Reserve.
“I don’t think this equity-marketcorrection is big enough yet to cause the Fed to back away from a hike inMarch,” he said.
Murenbeeld added that thecorrection would have to be big enough to push the U.S. into a recession forgold to really attract safe-haven flows.
Looking at gold, Murenbeeld saidhe sees the metal’s current price as relatively fair value. He added that themarket looks like it could meet his firm’s bullish forecast for prices toaverage $1,385 an ounce.
The recent price action,Murenbeeld said, will serve some notice to the Fed that markets and investorsare now paying more attention to interest rates. He added that the risk offurther equity-market corrections will keep the Federal Reserve fromaggressively raising rates.
With the U.S. central bankexpected to raise interest rates three times this year, Murenbeeld said bondrates will remain low enough to make gold an attractive alternative investment.
“Inflation is likely to drifthigher so it’s my guess that on the short end, we are going to continue to seelow to negative yields,” he said. “The long end is a little more complicatedbut I don’t think we are going to see a surge in 10-year TIPS yields.”
By Neils ChristensenFor Kitco News
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