Look To Buy Gold On Dips As Inflation Could Shock Markets - Aberdeen Standard Investments
(Kitco News) - King Dollar will rule over gold prices in the near-term, but the yellow metal will continue to be an important diversifier and safe-haven asset for investors in the long-term, according to one fund manager.
In a telephone interview with Kitco News Maxwell Gold, director of investment strategy at Aberdeen Standard Investments, said that he sees gold as a strong buy on dips as volatility will continue to weigh on financial markets.
Maxwell Gold, director of investment strategy at Aberdeen Standard Investments
Gold’s comments come as the U.S. dollar holds near its highest level since June 2017, which has pushed gold to a one-month lows as prices hold above critical psychological support above $1,200 an ounce. Comex December gold futures last traded at $1,202.60 an ounce, relatively flat on the day.
Weaker oil prices, which declined for 12 straight trading sessions, dropping nearly 25% since hitting a four-year high in early October. Gold said that the drop in oil prices is lowering inflation expectations, which in turn is driving real interest rates higher, pushing the U.S. dollar and bond yields higher.
However, he added that inflation is much more than just energy prices. He explained that wage pressures have increased, raising the risks of a surprise inflation shock to financial markets.
“I think inflation remains one of the biggest underpriced risks in the marketplace,” he said. “Right now the two crowded trades in markets are long U.S. dollar and short U.S. bonds. Any kind of shock to financial markets could reverse these two trades, which would benefit the gold market.”
Along with the threat of rising inflation, Gold said that the U.S. economy continues to move through the late-stage of its business cycle. He added that slowing economic growth next year will force the Federal Reserve to moderate its tightening path, which will take further steam away from the U.S. dollar.
“There are a lot of headwinds facing gold in the near-term but I still think investors are starting to see tangible risks in the marketplace and are slowly buying gold these dips,” he said.
While Gold is optimistic on the yellow metal through the medium to long-term, he also sees potential for silver to eventually regain its luster.
“Silver has been a tough story even as we see market fundamentals improving,” he said. “But in the current environment we think that silver can still outperform gold in an inflationary environment.”
Silver is current trading at its lowest level to gold in nearly 25 years. Kitco.com shows the gold-silver ratio trading at 85.73 points, meaning that it takes nearly 86 ounces of silver to equal one ounce of gold. December silver futures last traded at $14.0.10 an ounce, unchanged on the day.