(Kitco News) - Gold prices are again stuck under $1,800 an ounce, but one investment firm continues to see some resilient strength in the marketplace.
In their latest commentary, Joe Foster, portfolio manager and strategist, and Imaru Casanova, deputy portfolio manager for VanEck's gold strategy, said that they expect gold prices to hold around current levels even as the U.S. dollar sees renewed momentum.
The analysts added that any weakness in the U.S. dollar should provide some support for gold as investors continue to look for safe-haven assets in a world of uncertainty.
The U.S. dollar continues to be driven by rising interest rates and the Federal Reserve's aggressive monetary policy stance. However, Foster and Casanova said that the tightening cycle could be close to ending its aggressive rate hikes.
"We do believe the Fed will likely have to stop hiking rates as the economy contracts, but we also think that there is a significant risk that inflation remains at elevated levels for longer than anticipated. This would keep real rates in negative territory and be supportive of higher gold prices," the analysts said.
According to the CME FedWatch Tool, markets see a nearly 50/50 chance of the Federal Reserve raising rates by 50 basis points or 75 basis points in September. Heading into the end of the year, markets see a slower pace of rate hikes.
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"Markets still seem undecided as to whether this program will tame inflation or drive the economy into a recession. Some participants speculate that the U.S. economy is already in a recession; others anticipate that inflation is set to come down. Either scenario seems to support a sooner-than-previously-expected end to the Fed's tightening cycle – which we view as a strong catalyst to the gold price."
Although gold prices could be stuck in neutral, hovering around $1,800 an ounce, VanEck said that there are still opportunities in the precious metals market. Foster and Casanova said that streaming and royalty companies. The analysts said that this sector is in a good position to navigate rising inflation and input prices.
"Along with cash and gold bullion, royalty and streaming companies act as a defensive investment vehicle in a weak gold price environment. Exposure to this group of companies can also offer protection against cost inflation," the analysts said.
The report noted that the VanEck gold fund currently holds Franco Nevada, representing 9.23% of the portfolio, Wheaton Precious Metal, representing 4.91% of portfolio, Royal Gold at 2.1% and Osisko Gold Royalties at 1.56%.
