SPI Asset Management managing partner Stephen Innes believes gold could continue its rise going into the second quarter of this year, as “the weaker US dollar should provide an updraft”. — Reuters
PETALING JAYA: Gold, which is trading at US$1,935 (RM8,295) a troy ounce, is another asset class that is benefitting from expectations of a less hawkish US Federal Reserve (Fed).
However, analysts warn the gains could make an impulse U-turn when the US economy starts picking up.
SPI Asset Management managing partner Stephen Innes said the gold market is edging up to the US$2,000 (RM8,569) level on the expectation of a less aggressive interest-rate hike by the Fed early next month.
“In fact, bond markets are pricing in a cut (in interest rates) in the second half of the year, so investors see gold as a good hedge against the US dollar weakening,” he said.
Innes believes gold could continue its rise going into the second quarter of this year, as “the weaker US dollar should provide an updraft”.
However, he pointed out that the gold market has one key issue – it could be over-interpreting recession risks.
“China’s growth is on the upswing, Europe is no longer under threat of a recession and the US economy, outside of a run of soft economic data, isn’t doing that bad.
“While US growth data are admittedly weak, much of this weakness is in ‘soft data’, with hard activity data holding up much better,” he said.
Innes said the precious metal’s chances of breaking past the US$2,000 (RM8,569)-mark is supported by long-term investors who are relatively price agnostic and buy on regular patterns, regardless of price points.
“But I would be leery of chasing it much higher because when the US economy starts improving, the dollar stops weakening and gold might lose that favourable impulse.”
With recent reports of central banks stocking up on the yellow metal, Innes believes the banks are now stealing the centre stage from wealth management divisions, as usually the latter is the biggest franchise driving gold prices.
Among the notable transactions was the purchase of 970,000 ounces of gold by the People’s Bank of China (PBoC) in December, inching up its gold reserves to 64.64 million ounces. It was the second consecutive month the PBoC increased its holdings of the yellow metal, following a 103,000-ounce purchase in November.
Innes, however, said central bank demand dwarfs typical retail, consumer or hedge fund demand.
“There should be ample room for gold to flourish higher on official institutional demand in the first quarter of this year,” he said, adding that the greenback should remain under pressure and encourage US investors to buy gold as a hedge.
“The good thing about central bank demand is that physical bars get put in the vault and are unlikely to see the light of day for decades, so there is little threat of that supply returning to the market soon,” Innes said.
From a timing perspective, he expects the catalysts for such a gold positioning reappraisal to become more apparent in the second quarter.
