Gold Prices Will Continue To Beat Rising Real Yields - Fund Manager
(Kitco News) - One international fund manager is recommending that investors pay more attention to what is happening in the gold market compared to bond markets and interest rates, as the yellow metal continues to hold its ground despite rising real interest rates.
In a recent interview with Kitco News, Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the annual In Gold We Trust report, said, he is more inclined to believe that higher gold prices will outlast uptrend in real bond yields.
Stoeferle comments come as gold remains caught in the middle of a well-established trading range. June gold futures last traded at $1,349.70 an ounce, up 0.13% on the day.
“There are a lot of inflationary pressures with rising oil prices and a weaker U.S. dollar but what I see is massive deflationary risks because of quantitative tightening,” he said. “Quantitative tightening is the most underestimated risk in the marketplace.”
Stoeferle explained that the Federal Reserve’s plan to reduce its balance sheet along with its commitment to raise interest rates will lead to tighter credit conditions, which could ultimately push the U.S. into a recession sooner rather than later.
“I think the gold market is looking ahead and discounting the idea that this rate-hike cycle will be over a lot sooner than most people think,” he said. “I don’t believe there will be three to four rate hikes in the next couple of months.”
Although the U.S. economy has shown some resilient growth -- most recently, U.S. retail sales increased 0.6% in March, as consumers bought more new vehicles than expected -- Stoeferle said that the data is not as strong as one might expect under the surface. The latest information also showed that core retail sales grew in line with expectations.
Stoeferle added that growing market volatility and geopolitical uncertainty, it wouldn’t take much to push the U.S. economy off its expected growth track.
“Markets are priced for perfection and I think conditions are far from perfect,” he said.
If you want more proof than just the gold market, Stoeferle said that investors should also look at the price action the U.S. dollar. He explained that higher real yields should be bullish for the U.S. dollar; however, the greenback has struggled to hold its own against a basket of global currencies. This does not bode well for the U.S. economy as it is exceptionally inflationary, he said.
The U.S. Dollar Index last traded at 89.48 points, down 0.32% on the day.
“Investors are running out of safe-haven,” said Stoeferle. “We have seen the U.S. dollar weaken, equity markets fall and bond yields rise. The only asset that looks attractive right now is gold.”
Looking at prices, Stoeferle said that he is confident that prices will eventually break its current trading range. He noted that more volatility propels gold above $1,400.
“As soon as we start to see disappointing economic data, the Federal Reserve will be forced to reverse course on its monetary policy and that is when gold will take off,” he said. “Right now gold is quietly positioning itself for a long-term bull market.”