It has just been stated that investors that bought gold shouldn’t get worried by the drop of $60 an ounce prices (which happened just after the US elections).
According to Market experts, the rising in real interest rates was arrived by subtracting interest rates from inflation and that was the root cause behind the recent disaster in prices.
The fall in prices of gold has long been occurring but for the past 5 years, gold has stood its ground. Inflation is currently rising and its rise is faster than that of interest rate. But hopefully, the Trump administration would augur positive for gold.
“Trump’s policies are largely based around fiscal easing though tax cuts and bigger government spending plans. These policies should be inflationary, which reinforces our view that US inflation will move ahead of nominal rates, meaning that real rates, which are negatively correlated with gold, will come under greater pressure and therefore it would be positive for the yellow metal” said Giovanni Staunovo, commodity analyst at UBS Wealth Management.
The situation on the ground is that inflation is rising faster than interest rates. This means negative real rates and investors seek refuge in the yellow metal wealth preservation.
“If bonds are going up, because inflation is going up, then eventually inflation expectations will see a catch-up with the rise we see in bond yields. So real yields will come down again. Once that happens, gold should find support”, said Even Ole Hansen, head of commodity strategy, concurred with UBS’ Staunovo.
Prediction has it that gold may fall to a low of sun$1,200 an ounce level but will likely recover in the up-coming year.
“Gold would stabilise between $1,170 to $1,210 and eventually move higher again. My stop loss is $1,170, if it falls below I’ll have to readjust my portfolio. If gold breaches above $1,250 an ounce, that would create a lot of confidence,” Hansen added.