Markets Should Focus On Federal Reserve Interest Rates And Not Trump Policies - AnalystsBy Neils Christensen of Kitco News
Monday November 14, 2016 12:46
(Kitco News) - Steepening U.S. bond yields have dragged gold prices to their lowest point since early June as markets continue to react to potential fiscal stimulus proposed by president-elect Donald Trump.
Early Monday, the yield on U.S. 10-year notes rose to 2.25%, its highest level since early-January. At the same time gold fell to a low of $1,211 an ounce. The gold market has seen a more than 9% drop from last week’s election night highs.
However, moving forward, some analysts are recommending that investors shrug off the near-term volatility and focus on the long-term trend as the Federal Reserve maintains its “lower for longer” monetary policy.
Bart Melek, head of commodity strategy at TD Securities, said that gold could continue to suffer from higher yields but they still see a case for gold in 2017.
“We are comfortable saying that long-term after the Fed rate hike, gold will do fairly well,” he said. “Trump’s policies are going to be inflationary and the yield curve will steepen up but the Fed is not going to signal that it is going to restrict monetary policy. There will be a fear at some point that the Fed will be behind the inflation curve.”
Maxwell Gold, director of investment strategy for ETF Securities, agreed gold’s prospects look positive later in the year. The investment firm is looking for gold to end next year at $1,440 an ounce.
“I think you have to step back from current market conditions. The market is still flying blind in response to what are really unknown economic policies. Overall, the fundamental and macro case for gold hasn’t changed much,” he said.
ETF securities is also focusing on Federal Reserve interest rates instead of the unknown impact of speculative Trump policies.
“We see real global rates --not just in the U.S. but in Europe and Japan -- remain low or even negative and we see gold and silver perform positively on average,” he said.
Gold added that according to the firm’s research precious metals do well until real interest rates rise above 2%. The latest data shows that markets are still well away from that level. Last month U.S. Department of Commerce reported that the Fed’s preferred inflation measure, core Personal Consumption Expenditures Index saw an annual rise of 1.7% in September. Even with the U.S. bond yields at their highest level since the start of the year, real rates are around 0.52%.
“We are expecting to see a rate hike by the end of the year but ultimately the Fed won’t be able to keep up with inflation,” said gold.