Does Gold Really Have a Role In 'New Normal' Low Rate Environment? – Analysts

Monday June 13, 2016 14:19

(Kitco News) - Global interest rates at historically low levels may just be the “new normal” for financial markets according to a panel of speakers at the 22nd International Economic Forum of the Americas in Montreal, Canada.

But according to some on the panel it’s not clear what role gold will play in a world of global negative interest rates.

“It’s going to take a long time for interest rates to get back to normal,” said March Lévesque, vice president of economic and market strategy at PSP Investments in his presentation Monday. “We will start to see some normalization over time but they won’t return to levels seen before the financial crisis.”

Lévesque added that he thinks it is unlikely markets will see U.S. interest rates back around 5% or 6% because of the new global financial environment. While Lévesque sees lower interest rates for long, he said that he doesn’t think gold should continue to play a role in an investor’s portfolio.

“Gold is driven mostly by market sentiment,” he said in an interview with Kitco News after his presentation. “There is no real way to value gold.”

He added that in a world of global low and even negative interest rates, he prefers other real assets like real estate and timberland.

Peter Berezin, chief strategist of global investment strategy at BCA Research, said that he is expecting to see bond yields continue to fall but that the U.S. dollar will have more potential than gold in the near-term.

“If other central banks aren’t in a position to raise rates within the next decade then the Fed, with its two rate hikes, stands out,” he said in his presentation.

However, Berezin hasn’t ruled out gold completely. “If your investment horizon is within three to five years then I think it make sense to hold some gold,” he told Kitco News on the sidelines of the three-day conference.

Berezin explained that in three to five years, gold could become an important inflation hedge as central banks pursue “helicopter money” policies.

Near-term, Berezin is not optimistic that gold can maintain its breakneck pace, which saw prices rise 16% in the first quarter, the best quarterly performance in almost 30 years. He explained that the rally was the result of central bank’s introducing negative interest rates, which is now priced into the market.

“I don’t think interest rates will fall any lower and that will cap gold’s advance,” he explained.

Berezin said he is not just lukewarm on gold but also on equity markets. He noted in his presentation that the stock market is “very expensive” and as a result expects it to be “kind of boring” over the next few years.