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No support for gold; base metals and oil look better - USBWM's Haworth

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(Kitco News) - The gold market faces a challenging environment as rising real interest rates and a stronger U.S. dollar will act as significant headwinds for the rest of the year, according to one market strategist.

In an interview with Kitco News, Rob Haworth, a senior investment strategist at U.S Bank Wealth Management, said that while gold remains an important component in a portfolio, he is paying more attention to stronger cyclical commodities like base metal and oil. He added that the supply constraints and growing demand look attractive in the current economic environment.

Haworth added that he expects gold prices to struggle as the Federal Reserve looks to shift its monetary policy and potentially taper its monthly bond purchase before the end of the year.

The gold market is testing important support above $1,750 an ounce as investors continue to digest the Federal Reserve's latest monetary policy meeting. Although the Fed did not release its tapering plans, expectations are growing that they will announce the plans in November and potentially implement them in December.

At the same time, the latest economic projections show that the central bank committee sees the potential for one rate hike in December 2022. The central bank sees rates pushing to 1% by 2023.

"Everyone is expecting to see higher interest rates, and that is going to take another notch out of investment demand for gold," said Haworth. "Right now, there is no support for gold."

While Haworth is not particularly bullish on gold prices in the near term, he added that there is still a lot of economic uncertainty to support current prices. He noted that rising COVID-19 cases through the summer have created a soft patch in U.S. economic activity. There is no telling how long this could last, he added.

"Right now, we are in limbo. If COVID-19 cases continue to decline, then we could see a robust recovery," he said. "Consumers continue to clearly make choices based on the virus. If we see another surge in infection, then this soft patch continues."

However, even if the economic recovery is not as robust as expected, Haworth said that it might not derail the Federal Reserve's plans to tighten monetary policies.

"There is enough room in economic growth for the Fed to think about tapering, but perhaps not raising interest rates," he said. "There is probably enough liquidity in markets that central banks can start to become less accommodative."

Haworth said that his firm's base-case scenario is for the cyclical recovery to continue and assets associated with the recovery to remain attractive for investors.

"Instead of gold, I think the cyclical commodities probably have a better story at this point," he said.

Haworth added that he also sees more value in the equity side, in producers, than in the raw commodities. He noted that even if there is little upside left in commodities like aluminum or copper, their current price still represents significant value for producers.

"Companies may be better positioned than taking on the volatility of prices," he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.