Gold Has Room To Move - BlackRock
(Kitco News) - Not only does the world's biggest asset manager see bond yields ticking lower, but it also sees gold prices ending the year higher.
In a recent interview with Bloomberg, Russ Koesterich, portfolio manager at the $27 billion BlackRock Global Allocation Fund, said that gold prices could keep rising as the Federal Reserve is expected to cut interest rates.
"If easier policy from the Fed contains the dollar, that's an environment, all else equal, that is supportive of gold," Koesterich told Kitco. "What I'd add is if we get a situation where the Fed is easing, perhaps more than people thought because trade frictions are rising, that might be a particularly strong period for gold."
However, it might be difficult for the Federal Reserve to get ahead of aggressive market expectations. The CME FedWatch Tool shows that markets see a 40% chance of a 50 basis-point move in July. The prospect of four rate hikes grows almost daily.
Although Koesterich is bullish on gold for the year-end, he also warned that prices could see a pullback in the near-term.
Koesterich's comment come as gold prices trade near a six-year high. The yellow metal has rallied $124 this month and is up 9.45%, its best monthly performance since February 2016. August gold futures last traded at $1,434.90 an ounce.
Koesterich's gold outlook is relatively in line with the firm's fixed income outlook. In a recent interview with Kitco News, Joyce Choi, director of fixed income product strategy at BlackRock, said that she expects to see U.S. 10-year bonds yields push below 2% as the Federal Reserve cuts interest rates by 50 basis points this year.
"We do expect one or two rate cuts in the next few months, so that would actually indicate that we should see 10-years start falling lower," she said. "The bias is towards bond yields given the inflation expectations."
According to many commodity analysts, gold is an attractive asset in a low-interest rate environment because its opportunity costs drop as a non-yielding asset.