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Investors To Jump Back Into Gold As U.S. Dollar Rally Proves Temporary - Analyst

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Investors To Jump Back Into Gold As U.S. Dollar Rally Proves Temporary — Analyst

(Kitco News) - Gold is looking to end the year on a strong note, according to one long-standing gold bull, who sees the recent strength in the U.S. dollar and the U.S. real rates as only temporary.

Investors will be choosing gold again once the divided political environment in the U.S. pushes the greenback down, Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post on Tuesday.

“The recent appreciation in the dollar and U.S. real rates [will be] transient because the outcome of the U.S. midterm elections on November 6 (i.e., divided Congress) has curbed expectations for further fiscal stimulus and has raised the likelihood of a gridlocked government, which is therefore dollar-negative. This should lead to renewed downward pressure on the dollar and U.S. real rates, prompting speculators/investors to jump back in gold,” Mikanikrezai said.

Gold began to drop last week, falling from the $1,235 an ounce level to around $1,200 in just under one week. Following the plunge, prices have stabilized just above the key support level of $1,200 an ounce, with the December Comex gold futures last trading at $1,202.90, up 0.12% on the day.

One of the reasons behind such a big drop was the market’s interpretation of the Federal Reserve’s statement on Thursday during which the Fed kept interest rates on hold but chose not to mention the recent sell-off in equities, Mikanikrezai pointed out.

“Perhaps investors interpreted the latest monetary policy statement as more hawkish than expected because the Fed did not acknowledge the sell-off in risk assets in October. Against this backdrop, Comex gold spot prices have come under downward pressure as a result of spec/investor selling,” he said.

The analyst expects speculative buyers to resume their net long exposure to Comex gold as the year comes to an end and projects gold ETF inflows to become increasingly positive as 2019 begins.

“Investors [will] realize that the gradual tightening of U.S. financial conditions caused by the Fed tightening cycle will result inevitably in a higher level of volatility in risk assets, prompting them to buy more gold as a hedge,” Mikanikrezai wrote. “Investors may need more haven assets like gold in their portfolios to navigate the more volatile environment.”

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