Gold To Rally in H2 As U.S. Dollar Faces Structural Bear Market - ETF Securities
(Kitco News)- The goldmarket could struggle to attract buyers in the near-term as markets focus onthe impending Federal Reserve interest rate hike next week, but one investmentfirm sees the potential for the yellow metal in the second half of the year asfocus turn to a lackluster U.S. dollar.
In a recentinterview with Kitco News, Maxwell Gold, director of investment strategy andresearch at ETF Securities, said that his firm sees signs that the U.S. dollaris entering a “structural bear market,” because of rising inflation fears andconcerns over the government’s ballooning debt.
In itsbudget passed last month, the government raised its budget caps by $300 billionduring the next two years. The increased spending comes after Congress passedmassive tax cuts that could increase the deficit by $1.2 trillion over the next10 years.
Gold’scomments come as the U.S. dollar index struggles to hold the criticalpsychological level around 90 points. However, gold hasn’t benefitedsignificantly from a struggling momentum in the greenback. April gold futures lasttraded at $1,318.60 an ounce, down 0.42% on the day.
Gold addedthat he thinks it’s only a matter of time before investors turn back to gold asa safe-haven investment, as the U.S. dollar weakens.
“As acurrency devalues, the spending power of consumers and investors decreases,” hesaid. “This has pushed investors towards assets that have historically provideda hedge against rising inflation, particularly commodities - which fared wellin USD bear markets.”
While theU.S. dollar is holding its ground because of interest rate hike expectations,which in turn is weighing on gold, ETF Securities, does not expect this trendto last.
Gold saidthat because of the government’s significant debt issues, the Federal Reservewould be reluctant to raise rates too aggressively. Higher interest rates willlead to higher service payments, adding further headwinds to the nation’seconomic growth outlook, he said.
“Meanwhilecontinued economic recovery and a more optimistic growth outlook for Europe andEmerging Markets may spur investor capital to those markets, bidding up demandfor their local currencies while pushing the dollar lower on a relative basis,”he said.
How To Play Gold Heading Into The Q2
AlthoughGold is bullish on precious metals in the long-term, he warned that the goldprices could struggle in the near-term.
He addedthat he could see gold prices trading between $1.250 and $1.300 in the secondquarter and then rallying in the third and fourth quarter.
“Any dipbelow $1,300 is a very attractive entry point to build up a strategicallocation in gold,” he said.
In hisresearch, Gold noted that on average the U.S. dollar had lost more than 25% ina bear market, which has historically lasted about 5.5 years, meanwhile duringthose down years, commodities in general have risen more than 81%: U.S.equities have seen gains of more than 40%.
While Goldis bullish on the yellow metal in the current environment, he added that theenergy sector traditionally sees more gains from a weaker U.S. dollar.
By Neils ChristensenFor Kitco News
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