Anna Golubova Wednesday July 12, 2017 16:47
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Ignore the noise and focus on the U.S. dollar when it comes to gold, says one precious metals expert.
Gold is a barometer for the U.S. dollar, Miguel Perez-Santalla, sales and marketing manager at Heraeus Precious Metals, told Kitco News.
“People are looking to other indicators – the Fed, Japanese yen, euro – to see if anything impacts the dollar and vice versa, gold,” he said in a telephone interview. “The global currency is still the U.S. dollar. And while the greenback remains the primary mode of exchange, gold will be measured by its value. So the U.S. economy and how it is affected by other countries is where the focus is.”
After nearly breaching the $1,300 level in June, gold prices cooled off and are now trading at around $1,219 level. Meanwhile, the U.S. dollar index saw some gains in mid-June, climbing above 97.00 level and then again in the beginning of July. Now, it is trading around 95.75.
A key element to keep in mind when looking to the future is the underlying physical demand for gold, Perez-Santalla noted, adding that the metal may be up against a new threat right now.
Major support comes from gold’s demand as jewelry and one of the biggest dangers to gold’s global demand are things like the iPhone or any other new smartphones, he explained.
“For Christmas, anniversaries or other holidays people used to buy a significant piece of jewelry that was made with gold, but now it is all about the newest iPhone or tablet,” Perez-Santalla said. “The day people stop having demand for gold as jewelry, we could have a loss of interest. So, forward 200 years and you could extrapolate a moment where people don’t buy gold jewelry anymore. But, I don’t see it happening though.”
The main reason to hold gold is simple – it is an insurance against the “unknown,” while stability is the worst factor for gold’s short-term outlook, according to Perez-Santalla.
“Stability and the impression of an improving economy gives less impetus to own gold. There will be people who get disenfranchised with gold and don’t see the opportunity. Especially, with the Fed raising interest rate,” he said.
But, the Federal Reserve moving to raise rates at least one more time this year, doesn’t have to be bad news for gold, he added. “The next hike is already priced into the market and once it happens, we might see a bump in metals prices.”
Overall, Perez-Santalla is still bullish on gold and sees the yellow metal touching $1,300 this year. To him, gold is a must-have in every portfolio because it is a hedge against any type of crisis that might hit.
“Gold is the insurance option of the wise investor. In other words, you have to buy some gold and keep a balance in your portfolio for the eventuality of the unknown circumstance. Every 15-30 years, there is always some calamity that impacts overall portfolios,” he explained. “You do pay a premium for gold, sit on it and it doesn’t pay you back right away. But, if you hold it over a long term, it does perform and do its job.”
In the end of the year, the market is likely to see a lot of traders rebalancing their portfolios and adding gold because of lower prices, which will boost the metal, Perez-Santalla added.