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Gold To Rally in H2 As U.S. Dollar Faces Structural Bear Market – ETF Securities

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(Kitco News) - The gold market could struggle to attract buyers in the near-term as markets focus on the impending Federal Reserve interest rate hike next week, but one investment firm sees the potential for the yellow metal in the second half of the year as focus turn to a lackluster U.S. dollar.

In a recent interview with Kitco News, Maxwell Gold, director of investment strategy and research at ETF Securities, said that his firm sees signs that the U.S. dollar is entering a “structural bear market,” because of rising inflation fears and concerns over the government’s ballooning debt.

In its budget passed last month, the government raised its budget caps by $300 billion during the next two years. The increased spending comes after Congress passed massive tax cuts that could increase the deficit by $1.2 trillion over the next 10 years.

Gold’s comments come as the U.S. dollar index struggles to hold the critical psychological level around 90 points. However, gold hasn’t benefited significantly from a struggling momentum in the greenback. April gold futures last traded at $1,318.60 an ounce, down 0.42% on the day.

Gold added that he thinks it’s only a matter of time before investors turn back to gold as a safe-haven investment, as the U.S. dollar weakens.

“As a currency devalues, the spending power of consumers and investors decreases,” he said. “This has pushed investors towards assets that have historically provided a hedge against rising inflation, particularly commodities - which fared well in USD bear markets.”

While the U.S. dollar is holding its ground because of interest rate hike expectations, which in turn is weighing on gold, ETF Securities, does not expect this trend to last.

Gold said that because of the government’s significant debt issues, the Federal Reserve would be reluctant to raise rates too aggressively. Higher interest rates will lead to higher service payments, adding further headwinds to the nation’s economic growth outlook, he said.

“Meanwhile continued economic recovery and a more optimistic growth outlook for Europe and Emerging Markets may spur investor capital to those markets, bidding up demand for their local currencies while pushing the dollar lower on a relative basis,” he said.

How To Play Gold Heading Into The Q2

Although Gold is bullish on precious metals in the long-term, he warned that the gold prices could struggle in the near-term.

He added that he could see gold prices trading between $1.250 and $1.300 in the second quarter and then rallying in the third and fourth quarter.

“Any dip below $1,300 is a very attractive entry point to build up a strategic allocation in gold,” he said.

In his research, Gold noted that on average the U.S. dollar had lost more than 25% in a bear market, which has historically lasted about 5.5 years, meanwhile during those down years, commodities in general have risen more than 81%: U.S. equities have seen gains of more than 40%.

While Gold is bullish on the yellow metal in the current environment, he added that the energy sector traditionally sees more gains from a weaker U.S. dollar.

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 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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