Gold doesn’t need a dovish Fed to move higher - Direxion
(Kitco News) - Although there is room for gold prices to see further selling pressure in the near-term, the future still looks bright for the precious metal, according to one investment firm.
Edward Egilinsky, managing director and head of alternative investments at Direxion
Edward Egilinsky, managing director and head of alternative investments at Direxion, said in a telephone interview with Kitco News that gold’s uptrend remains in place, and he expects to see higher prices in the long-term.
He noted that gold continues to show resilient strength as the price holds critical support above $1,500 an ounce, following a more hawkish than expected stance from the Federal Reserve. Decenber gold futures last traded at $1,508.30 an ounce, down 0.49% on the day.
In a widely expected move, the U.S. central bank cut interest rates by 25 basis points on Wednesday; however the Federal Reserve’s economic projections forecast no more rate cuts through 2020 and rising interest rates through 2022.
Federal Reserve Chair Jerome Powell revealed very little details regarding the future path of interest rates, noting that the central bank will adjust monetary policy according to the evolution of the economy. He added that the base case is for the U.S. economy to see lower but still positive growth.
Egilinsky said that the reaction in the gold market shows that the precious metal doesn’t need a dovish U.S. central bank to move higher.
Ongoing issues like the U.S. trade war with China, Brexit uncertainty in Europe and now rising tensions in the Middle East will continue to support gold prices in the long-term, Egilinsky added.
“Regardless of what the Federal Reserve does, geopolitical risks will keep a bid in gold,” he said.
He added that because of low bond yields around the world, there are few attractive safe-haven assets. It could be only a matter of time before investors need more diversification.
Relatively low volatility with equities near records highs is not a healthy sign for financial markets, Egilinsky said.
“If the [Volatility Index] starts to rise and normalize that will be favorable for gold,” he said. “The weak global economy combined with the trade war is starting to have a ripple effect on earnings and that will weigh on overvalued equity markets.
“Having a diversified portfolio, which includes a position in gold regardless of its short-term potential,” he added.
Looking at the firm’s investment strategy, Egilinsky that the Direxion Auspice Broad Commodity Strategy ETF (NYSE: COM) is currently only long three commodities: gold, silver and wheat.
He added that the ETF’s rules based momentum calculations shows that gold’s upward price trend is firmly in place.“If gold can hold support in the short-term then I think we can see prices push towards $1,600 an ounce by the end of the year,” he said.