As inflationary pressures push up, there is some new momentum in the gold market. However, one fund manager warned that gold could struggle for the rest of the year as economic activity picks up.
Rob Haworth, senior investment strategist at Bank of America Wealth Management, said he had a negative view on gold before 2021 as the US and global economies are expected to show their best growth in decades. Investors should consider implementing more aggressive strategies in their portfolios, it added.
"We believe that there are upside risks to the economy, which will push up inflation and real interest rates, which will have a negative impact on gold."
Haworth said the current price of more than $1700 an ounce may represent the reasonable value of gold. It added that gold prices were expected to fall in the long term.
While stock market valuations are close to record levels, Haworth said the market could still move higher.
"this is not a market that can rise by will alone. The stock market is being driven by earnings and fundamentals, "he said.
Last week, the International Monetary Fund ((IMF)) raised its growth forecast for 2021. It now expects the US economy to grow by 6.4 per cent this year and the global economy to grow by 6 per cent. Haworth said these estimates were relatively in line with USBWM's expectations.
There is still a lot of uncertainty about the long-term impact of the novel coronavirus epidemic on economic activity, which has helped to stabilize gold prices above $1700 an ounce. However, Haworth said he was more concerned about the growing pent-up potential that could be unleashed when the economy began to open up.
"there is still a lot of work to be done before the economy fully recovers," it said. "
Mr Haworth added that he believed the biggest risk facing the market was that strong economic growth and rising inflation would force the Fed to tighten monetary policy sooner than expected. However, he also pointed out that this could be a low risk given the Fed's recent dovish statements and forecasts.
"the Fed will not withdraw policy support until most consumers return to work."
Haworth said its company was using real estate and (REITs), a real estate investment trust, to balance risks in its portfolio rather than focusing on gold.
"We are relying on other cash flow asset classes to provide defensive characteristics for our portfolio," it said. " "We are trying to raise yields as much as possible, crowding out defensive investments such as gold in favour of investments that bring us some cash flow."
However, Haworth said he would consider base metals producers for investors seeking exposure to commodities. This year, the prices of metals such as copper, aluminium and tin have risen to multi-year highs.
"We think commodity producers are doing well in this environment because there is an upward trend in commodity prices when the market reopens," he said. " "this should be good for producers and cash flow."
