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Gold is An ‘Asymmetrical’ Trade With Long-Term Potential - Fund Manager

(Kitco News) - Despite potentially lower prices in the short-term, one fund manager continues to see long-term potential in the gold market.

There are only two more weeks until the much anticipated June Federal Open Market Committee (FOMC) meeting and interest rates remain in the spot light weighing down the yellow metal said, in an exclusive interview with Kitco News, Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report, which will be published later this month.

Ronald-Peter Stoeferle, fund manager at Incrementum AG
Although the market has priced in an eventual rate hike, predicting the Fed will pull the trigger in September, Stoeferle said he expect any move will be a token gesture because the U.S. and global economies can’t afford higher rates right now.

He added that he expects the Fed will raise interest rates by 0.25% in September because it has to maintain its credibility and keep it there for the rest of the year before reversing course.

“This first rate hike is all about credibility. The Fed is in a lose/lose situation. If they don’t hike rates the markets will completely lose face with them but below the surface the Fed knows that the economy is not is good shape.”

Stoeferle noted that after a disappointing first quarter, which in the last government estimate showed a contraction of 0.7%, the data has still not shown a robust recovery so far in the second quarter.

Another reason why Stoeferle thinks the Fed will be reluctant to go beyond a 25 basis point hike is because he said it can’t afford any further strength in the U.S. dollar. While one could argue that the Federal Reserve is in a positon to raise interest rates, the European Central Bank (ECB) continues to flood the market with liquidity, purchasing asset-backed securities and government bonds.

“I cannot believe that the Fed will really diverge that far away from the ECB because then the U.S. dollar would go below parity with the euro,” he said. “I don’t think the Fed really wants that.”

Although the long-term prospects for the gold market remain strong, Stoeferle added that in the short-term the lackluster demand will continue to weigh on prices. He said that he is expecting to see one more final shake out, with prices eventual breaking down to new lows, below $1,130 an ounce.

“What I could image would be to see some more short-term weakness and some final panic selloff,” he said. “But that would be positive for the market long-term.”

“Looking at long-term trends my research shows that gold is really inexpensive at these levels and the beauty of gold at the moment is that it is a very asymmetrical trade with very little downside.”

Stoeferle added that he will present his long-term gold insights at the end of June when he releases the In Gold We Trust report, what some have described as one of the most comprehensive gold reports in the marketplace.

By Neils Christensen of Kitco News;
Follow Neils Christensen @neils_C

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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