(Kitco News) -The safe-haven bid and inflation fears that drove gold prices higher in the final months of last year and into January have run their course, and there is little new information that can push gold prices back above $1,900 an ounce, according to one market strategist.
In an interview with Kitco News, Rob Haworth, senior investment strategist at U.S Bank Wealth Management, said that he doesn't see any significant selloff for gold this year but does see signs that the market has peaked.
Haworth's roughly neutral outlook on gold comes as the precious metal struggles to attract new bullish attention, with prices falling below $1,850 an ounce. April gold futures last traded at $1,846.10 an ounce, down roughly 1% on the day.
He noted that although inflation remains elevated, it continues to trend lower; at the same time, recession fears also continue to ease. Haworth added that USBWM's economists expect the U.S. economy to narrowly avoid a recession this summer and growth to recover by year's end.
"The question investors need to ask themselves is what's next for gold," he said. "Looking back, we can explain and understand the price action of the last three months, but does that continue for the next six months? This could just be more volatility within a much broader trading range."
A critical driver for gold's future direction remains the U.S. dollar. Haworth explained that a weaker U.S. dollar could provide some support for the precious metal; however, he added that they don't see it as a likely scenario.
Although inflation is slowing, he said it will remain persistently high enough that the Federal Reserve will maintain its aggressive monetary policies. The U.S. central bank is closer to the end of its tightening cycle with maybe one or two more rate hikes expected. Hawthorn noted the Fed will not be in a hurry to loosen the reins any time this year.
"We expect real interest rates to continue to rise as the Fed holds the line, but inflation pressures start to ease and that is another negative for gold," he said.
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Haworth added that another problem gold faces is the growing competition for safe-haven assets. While the inverted yield curve in U.S. bond markets remains at its widest margin since the early 1980s, Haworth noted that yields across the curve continue to increase.
He noted that short-duration bonds are becoming attractive again, with one-year Treasury Bills currently giving investors a 5% yield.
"Even with inflation up, I'm getting paid a real yield now, in essentially cash, which should siphon away some of the demand for gold," he said.
As for USBWM's broader portfolio stance, Haworth said that they remain relatively defensive but are starting to shift to a more neutral stance. He added that as an inflation hedge, they continue to assets in global infrastructure.
He also said they are starting to pay more attention to the utility sector.
"We're probably more on the defensive side, but we're evaluating how defensive we want to be at this point and what are the downside risks ahead for us," he said.
