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Gold Prices Well Supported - BlackRock

Kitco News

(Kitco News) - Gold prices should remain supported in an environment of falling real interest rates, according to the world’s largest asset management firm.

Wednesday, in an interview with Bloomberg Television, Evy Hambro, global head of thematic investing at BlackRock, said in a low rate environment, investors are now turning to gold as store of wealth as global uncertainty continues to sweep through financial markets.

“Getting little return on your cash and the prospects of [interest] rates going even lower, obviously the competitiveness of gold becomes much better,” he said. “We are seeing a lot of demand for gold.”

But it’s not just investors who are enjoying the rally in gold prices; Hambro said that major producers are benefiting from the current uptrend, which could continue to drive merger and acquisition activity within the sector.

He added that depleting resources continue to be a major issue for gold producers and there could be a rush to replace those gold ounces.

“I think consolidation is going to be a theme,” he said. “With the junior space trading at a discount and the bigger companies enjoying the higher prices, you could start to see more consolidation.”

Although gold prices are down from last month’s six-year high, the market is still holding on to significant gains with prices trading above $1,400 an ounce. August gold futures last traded at $1,417.10 an ounce, up 0.33% on the day.

The gold market saw a strong push Wednesday after Federal Reserve Chair Jerome Powell set the stage for an expected rate cut at the end of the month. In his semi-annual testimony before Congress, Powell said that trade policy and a weak global economy “continue to weigh on the U.S. economic outlook”.

Hambro’s optimistic gold and mining outlook is in line with the firm’s fixed income outlook. Last month, in an 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 lower bond yields given the inflation expectations."

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