TDS: Real Opportunity Cost To Hold Gold Is Likely To Remain Low

Tuesday August 30, 2016 09:23

TD Securities sees factors that remain supportive for gold despite nervousness that a more hawkish tilt from recent Federal Reserve speakers could portend a U.S. interest-rate hike. There is continued ambiguity on U.S. rates, TDS says. “The ever-present economic and system risks along with the Fed skittishness or even fickleness of late, when it comes to rising rates, should see investors unlikely to sell gold too aggressively,” TDS says. The Fed is likely to hike rates no more than a couple of times, while unconventional policy of the Bank of Japan and European Central Bank means some $13 trillion with of fixed-income paper is yielding negative rates, analysts say. Also, at the Jackson Hole Fed symposium, U.S. policymakers indicated they may have to return to an unconventional policy toolkit to fight the next downturn. “As such, the real opportunity cost to hold gold is likely to remain low and could spike lower should non-conventional monetary policy generate inflation at some future date,” TDS says. “This, in addition to equity market adjustment risk, suggests that investors may continue to want to be exposed to gold as a hedge.”