A scenario to end gold's bull run looks increasingly unlikely - Invesco
In a commentary published last week, Talley Léger, Investment Strategist at Invesco, said that the fundamental outlook for gold that has driven prices to nearly double since the lows in late 2015 isn’t going away anytime soon.
December gold futures last traded at $1,957.10 an ounce, up 0.71% on the day.
Léger said that for the gold market to lose its current momentum, the U.S. economy would have to overheat enough to force the Federal Reserve to drastically raise interest rates, which in turn would boost the U.S. dollar. A rise in interest rates would also put the current economic recovery, which is benefitting from low interest rates, in jeopardy.
Léger said that it would be difficult “to identify a catalyst that would bring about such a scenario at this vulnerable stage of the nascent economic recovery.
“In our view, the Fed seems determined to protect this budding upturn by keeping interest rates low for the foreseeable future,” he added.
Although gold’s bull run doesn’t appear to end anytime soon, Léger also said that there are risks to watch. He warned gold investors to keep an eye on consumer sentiment. He explained that rising consumer sentiment could foreshadow impending economic growth.
“According to the latest Surveys of Consumers, challenging economic times are expected to persist not only in the year ahead, but most consumers don’t see a return to uninterrupted growth over the next five years,” he said.
Léger added that Invesco’s base-case scenario is for prolonged, low-altitude recovery alongside lingering fears about the coronavirus, which will be a healthy environment for gold.
As the U.S. looks for meager growth for the foreseeable future, Léger said that the Federal Reserve will continue to maintain low interest rates, which will weigh on the U.S. dollar.
He also said that the threat of rising inflation as the Fed keeps nominal interest rates low could lead to lower real interest rates, “a welcome development for the price of gold.”