Gold Is A ‘Long Way Away’ From A ‘Powerful Bull Market’
(Kitco News) - As major central banks around the world are looking to tighten their monetary policies, gold could suffer, delaying the anticipated bull market, said one senior portfolio manager.
Economists are carefully watching the actions of the U.S. Federal Reserve, which is reducing its balance sheet and is widely expected to raise rates again in December. Also on their radar, is the European Central Bank, which wants to start tapering its bond purchases.
“Given the outlook for the Fed and, down the road, the ECB, it seems highly unlikely that gold can thrive in that environment,” Troy Gayeski, senior portfolio manager at SkyBridge Capital, told Bloomberg on Tuesday.
At the same time, the Bank of England hiked rates for the first time in more than a decade earlier this month and the People's Bank of China is expected to step up its efforts to scale back on a record buildup of debt.
Gayeski warned that gold’s future for the next few years could be just trading sideways.
“We're a long way away from a very powerful gold bull market. That being said, gold could've already bottomed several years ago and trade sideways for many years until we enter the next great loosening cycle, which will come when the risk of recession goes up materially in the U.S.”
Even though gold rose about 20% to $1,273 an ounce since the Fed began its tightening cycle in December 2015, its main catalysts have been a weaker U.S. dollar, geopolitical tensions between the U.S. and North Korea and Brexit.
December Comex gold was last seen trading at $1,282.10, down 0.06% on the day.
Inflation will play a key role as the Fed tightens further, Gayeski added.
“It seems unlikely that inflation goes meaningfully above 2 percent to 2.5 percent anytime soon,” he said. “As the Fed tightens further, real rates in the U.S. will gradually creep up to positive territory. Over time, one would suspect that as long as inflation stays contained, we'll at least have modestly positive real rates in the U.S. It's very hard to see gold doing tremendously well in a tightening environment.”