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TD Securities: ‘Gold Is Down But Not Out’

Gold is “down but not out,” says TD Securities. After an initial spike higher a week ago when it became apparent Donald Trump would be the next U.S. president, the precious metal has since turned lower. Prices fell as the market factored in ideas that U.S. fiscal stimulus will lift inflation expectations, move yields higher and boost the dollar. “Higher yields along with a sharply higher USD are usually a very poisonous environment for gold,” TDS says, saying the metal could drop below $1,200 an ounce as the Federal Reserve prepares to hike interest rates. However, “while there are big downside risks for now, the future looks better for gold,” TDS says. The Fed likely will be “measured” when it tightens monetary policy, looking to “normalize rather than be restrictive.” Thus real interest rates – adjusted for inflation – may remain negative on the front end of the yield curve, TDS says. Trump’s proposed tax cuts and spending hikes are expected to boost the U.S. deficit, TDS continues. “Of course any talk about lifting inflation targets coming from the Fed, the pending Italian Constitutional vote and several European elections, which could raise questions surrounding the viability of the EU (European Union), are all reasons that gold is down but not out.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Mitsubishi: Gold Still Has Role As Portfolio Diversifier, Risk Hedge

Tuesday November 15, 2016 11:00

Inflationary and geopolitical concerns mean investors may keep looking to gold as a portfolio diversifier and hedge, says Mitsubishi. Anticipation of “Trumponomics” has boosted equities, base metals and the U.S. dollar on hopes of tax cuts coupled with infrastructure spending, Mitsubishi says. Yields on U.S. Treasury notes surged as investors rotated toward so-called risk assets. “Some have even called the recent move in U.S. yields as ending the 30-year-long bear market in U.S. Treasuries and thereby potentially making gold and precious look [like] a much less attractive prospect for investors,” Mitsubishi says. “However, we believe that this is overdone; 10-year yields have not yet seriously threatened to break out of their long-term downtrend, while real rates (inflation-adjusted Treasury yields) are still well below their 2016 highs. In addition, with record-high U.S. equity valuations, there is considerable downside risk from here, and longer term we believe that inflationary and geopolitical pressures will continue to make the case for gold as a portfolio diversifier and risk hedge.” Additionally, a more protectionist U.S. stance on trade also means a role for gold as a risk hedge in the medium to longer term, says Mitsubishi.

By Allen Sykora of Kitco News; asykora@kitco.com

 

TDS Sees Platinum/Palladium Ratio Moving Lower

Tuesday November 15, 2016 11:00

TD Securities looks for the platinum/palladium ratio to keep falling. The ratio measures how many ounces of palladium it takes to buy an ounce of sister metal platinum, and a lower ratio means an outperformance by palladium. The ratio had fallen to 1.34 times as of a TDS research note, and analysts set a target of 1.30. TDS cites Johnson Matthey data showing the platinum market is likely to be in a surplus for the first time since 2011 will palladium remains in deficit. “The market will continue to like the idea that auto sales growth in China continues to outperform, while the comprehensive trade data still continues to point to palladium demand strength versus platinum,” TDS says.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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