By Anil Mathews

ScrapMonster Author

Distressed Gold Bulls May Find Solace in Fed Rates Record.

Market Daily & Weekly

Note: Indications only, open and closing prices are bids; Data source: Bloomberg; Times as per Dubai

Fundamentals and News

Distressed Gold Bulls May Find Solace in Fed Rates Record

Investors betting that this year’s gold rally will falter as the Federal Reserve raises U.S. interest rates may want to consider recent history.

While gold’s rally has sputtered this month amid concern that higher borrowing costs curb the appeal of non-interest-bearing assets, the metal fared well in earlier rounds of rate increases. Gold gained 52 percent in the June 2004 to June 2006 tightening cycle, when the Fed raised rates to 5.25 percent from 1 percent. It rose 5 percent from June 1999 to May 2000, when borrowing rates climbed to 6.5 percent from 4.75 percent.

One reason for the gains: The Fed tightens monetary policy when it’s concerned about inflation, and that’s a good environment for gold, which is often used as a hedge against rising prices, said Mike McGlone, a Bloomberg Intelligence strategist. Some investors also see value in the sell-off amid concern about fallout from Brexit, Europe’s elections and U.S. President Donald Trump’s trade policies, which could underpin demand for haven assets.

“There’s a decent amount of negative short-term sentiment expressed in the gold asset class, which may present an opportunity from a longer-term investment standpoint,” said Joe Wickwire, who oversees the $1.5 billion Fidelity Select Gold Portfolio fund at Fidelity Investments in Boston. "If you have ongoing friction between different countries, that’s going to be a double-check for the gold price."

Gold capped the biggest weekly loss since November on Friday, cutting this year’s gains to about 5 percent. Investors bailed as data showing solid U.S. jobs growth fueled speculation that the Fed will boost rates at least three times this year.

The metal touched a 10-month low on Dec. 15, a day after the Fed raised rates and forecast a steeper path for borrowing costs in 2017. Prices rose as much as 13 percent from that level by late February, only to slip again with renewed concerns over the Fed rate outlook.

“While these short-term adjustments are painful, once we’re through that period we will go back to start normalizing again,” said Dan Denbow, money manager at the $600 million USAA Precious Metals & Minerals Fund in San Antonio.

Gold should again strengthen “convincingly” after the Fed’s March meeting,Wayne Gordon, commodities, rates and FX strategist at UBS Group AG’s wealth management unit, said in a note to clients March 13. The metal should “move higher as real yields fall back and the first round of the French presidential election triggers new uncertainties.”

Data Forthcoming Releases

Courtesy: http://kalotipm.com.sg/kaloti-market-report-march-15-2017