(Kitco News) – The Fed may be late to the party but once they begin cutting, history says gold will take off, according to David Rosenberg, founder and president at Rosenberg Research.
In a recent interview with BNN Bloomberg, Rosenberg was asked about the interest rate divergence between the Federal Reserve and other developed economies after both the European Central Bank (ECB) and the Bank of Canada cut rates last week, and whether he expects those banks to continue cutting.
“The Fed has already told you that it's a waiting game for them,” Rosenberg said. “I've been doing this for 40 years. Whenever any central bank… look at [ECB President] Christine Lagarde last week. Whenever they start to cut rates they never want the markets to leapfrog them, to front-run them, so they're always cautious at the first rate cut.”
Rosenberg said that he expects things to play out the same way when the United States begins their own rate-cutting cycle. “You're going to see when the Fed cuts rates later this year I think that they will start in September,” he said. “Powell's going to actually sound pretty hawkish or cautious, that's just the way things go in central banking.”
Rosenberg said that markets aren’t yet accounting for the number of cuts that are to come. “What's happening is that there is not enough Bank of Canada easing priced in, and as these interest rate differentials widen against the Canadian dollar – and there's nothing more important for any currency than relative interest rate differentials, by the way, and that includes the Canadian dollar which is also commodity based – the Loonie’s going to go down.”
He added that he sees a weaker CAD as a positive development. “It should go down,” Rosenberg said. “We need the weaker Canadian dollar. The economy needs that sort of stimulus right now.”
Rosenberg was then asked whether he still likes gold as an investment, following its dramatic rally and the sudden pullback after China’s central bank announced a pause in purchases.
“Remember, it's Rosenberg, not Goldberg, just to set the record straight,” he joked before adding, “you can look at the moving averages and sentiment and trade around gold, [but] for us, for years it's been buy and hold, a diversifier in the portfolio.”
“But we are going into a global interest rate cut cycle,” he emphasized. “It doesn't matter if the Fed’s the last man standing, the Fed will be cutting rates, and the U.S. dollar might not weaken initially, but next year when the Fed plays catch-up to everybody else, the U.S. dollar will be weakening.”
Rosenberg said that another thing he liked about the yellow metal’s recent rally is that it hasn’t been limited to the greenback.
“What I liked about gold, in particular in this rally to the highs, is that it was making a high in every currency, not just the U.S. dollar, which is telling you something, that this is a real, bona fide bull market in bullion,” he said. “You just have to look at the history books, and look at the relationship, that when you go into a global interest rate cutting cycle, which we are in the early stages, gold does very well in that environment.”
