Gold's Safe-Haven Appeal Remains Healthy - Reuters GFMS
(Kitco News) - Many investors have lamented gold's lackluster safe-haven appeal, but one analyst says there is still demand in the marketplace.
In a recent commentary, Thomson Reuters GFMS senior precious metals analyst Samson Li said that gold's outperformance compared to other precious metals is a sign that the gold market still has healthy safe-haven demand.
While the gold-silver ratio is off its recent highs from last month, it remains elevated. Kitco.com shows the ratio at 81.65 points, down from September's two-decade high at 85.04 points.
Li added that gold's safe-haven allure can also be seen in its outperformance of platinum, another precious metal with significant industrial applications.
"Indeed, the widening gap between gold, silver and platinum over the last few years, reflects the common market belief that market risk has been increasing over time and signals that risk-averse sentiment reached peak level," he said in the GFMS report. "Despite gold losing value (in dollar terms), at least it is outperforming most of its peers by limiting the loss."
Looking ahead, Li warned that the gold market could struggle to find momentum in the near-term as an escalation in the U.S.-China trade war and further instability in emerging markets supports the U.S. dollar.
However, he added that extreme negative sentiment throughout the precious metals markets bodes well for a long-term uptrend.
"It is not an exact rocket science that one should invest when the market sentiment is bearish and sell when the sentiment is extremely bullish. Be a contrarian or be a victim," he said.
Li said that he sees prospects for a recovery in gold as investors could be overestimating the number of future interest rate hikes that is also a critical component supporting the U.S. dollar.
"In the longer run, whether the US wants to lessen its debt burden in real terms (especially revenue already lost due to tax cuts), or expand the country's manufacturing sector, the only way to fulfill these strategies is for the dollar to depreciate against other currencies so that America can remain competitive," he said. "As a result, the author thinks the Fed target rate will remain below 3% in the long term, and a weaker dollar is likely to benefit commodity prices."
Li's comments come as gold prices continue to hold critical support above $1,200 an ounce. December gold futures last traded at $1,208.40 an ounce, up 0.12% on the day.