Macroeconomic conditions will remain quite favorable to Gold

UNITED STATES June 20 2017 6:35 AM

NEW YORK (Scrap Register): Mitsubishi said that the short- to medium-term macroeconomic outlook remains supportive for gold prices, suggesting the metal has perhaps taken more of a battering than may be justified since last week’s U.S. interest-rate hike was already anticipated and the rate-hike path remains largely unchanged.

“The emphasis by the Federal Reserve on shrinking the balance sheet does have the potential to make the macro environment less favorable to gold if it means that, with less demand from Fed reinvestment, the yield on U.S. Treasury debt rises,” Mitsubishi added.

“If inflation also remains stubbornly low, this would mean that real interest rates rise, thus increasing the cost of carry for non-yielding precious metals,” said the analysts at Mitsubishi. 

A major unknown for Fed watchers remains the three current unfilled vacancies on the Federal Reserve board, plus a possible new chair and two new vice chairs who are due to be in place by the end of next year. 

“Overall, despite the Fed ratcheting up the hawkish tone…we believe that macroeconomic conditions will remain quite favorable to gold over the short to medium term,” Mitsubishi noted. 

The firm added that geopolitical factors continue to favor gold as a risk hedge. In particular, analysts said that Britain’s recent inconclusive election introduces new uncertainty, particularly for negotiating an exit from the European Union.