Gold on the defensive as recovery story is too compelling for investors – US Bank Wealth Management
(Kitco News) - The gold market isn't able to break free of $1,800 an ounce as it is stuck and waiting for a new catalyst, according to one investment strategist.
In a recent interview with Kitco News, Rob Haworth, senior investment strategist at U.S Bank Wealth Management, said that in the near term, he expects gold prices to remain on the defensive as investors on the ongoing economic recovery in the U.S.
"Gold is a market that is looking for its next driver. Until the trend is clear, nobody is going to allocate much capital into the precious metals," Haworth said.
The comments come as gold prices fall below the critical psychological support level. August gold futures last traded at $1,797 an ounce, down 0.27% on the day.
Haworth added that investors might have to wait until September to see how the next recovery phase unfolds. A new wave of the COVID-19 virus is sweeping through the U.S. Haworth said that if the pandemic can be controlled again and schools open up, he sees the recovery transitioning into a longer expansion phase, which will lead to higher interest rates creating a negative environment for gold.
However, if the virus continues to spiral out of control, putting the recovery at risk, then he would expect to see renewed interest in gold.
"This is a market that is waiting to see what happens next," he said. "I think the risk to the current cyclical growth story is low."
Haworth added that for now, he expects the recovery to progress, and in this current environment, his firm continues to prefer cyclical stocks over safe-haven assets. He added that the U.S. economy is farther along in its recovery covered to other regions, so he prefers domestic stocks.
"We think the growth stories are too compelling right now to benefit gold," he said. "We are seeing some earnings growth and that is attracting some investors."
Haworth said that he doesn't see the current inflationary environment being sustainable over the long term. He added that he expects to see higher real rates along with rising interest rates, which will be a headwind for gold.
"The demographics are changing, and they are seen as deflationary," he said. "We also see productivity growth is not expanding. That is not a good environment for inflation. Our base case calls for inflation to slow but still remain above average."
However, Haworth said one scenario that is positive for gold is if emerging market demand picks up."Emerging markets have been hit hard by the coronavirus, but if they can start getting vaccines and life can get back to normal, then I think we will see a pick up in gold demand," he said.