Wait for a Dip
Posted on Nov 04, 2019 at 12:00 am
Investors can expect the rally in gold to continue as uncertainty dominates the marketplace, according to the latest forecast from the World Bank.
Leading institutions have been going gaga for gold and presenting it as a good means of long term investment.
The World Gold Council (WGC), in its latest investment update focuses on possibilities of gold turning out to be a more attractive and effective diversifies than bonds.
According to WGC, the recent shift to easy monetary policy by world central banks has reduced expected bond returns. This, coupled with record stock-to-yield valuations presents an enticing opportunity for gold. As a result, WGC urges investors to re-optimize their portfolio structure by allocating additional 1%-1.5% exposure to gold, by neglecting its historical performance.
The lack of returns in the form of interest on gold could deter investors from holding it for short-term or medium-term gains. However, in the midst of negative real-yielding debt scenario, gold prices are likely to report huge surge. WGC believes that investors are unlikely to achieve the same bond returns, as seen over the past few decades. In short, a lower rate environment is expected to make gold more effective than bonds in mitigating portfolio risks and boosting portfolio returns.
The central bank signaled a pause in further cuts for now, it also seemed to per-commit to keep rates low for the foreseeable future.
The U.S. central bank on Wednesday cut interest rates for the third time this year to help to sustain U.S. growth despite a slowdown in other parts of the world.
The U.S. dollar fell to a more than one-week low against leading rivals. As the US dollar came under pressure, gold prices strengthened.
Along with a cut in interest rates there were also some uncertainties surrounding a US-China trade deal. This furthers reinforced gold’s appeal as a safe haven asset.
Gold is highly sensitive to any reduction in interest rates, which decreases the opportunity cost of holding non-yielding bullion. Rate cuts also weigh on the dollar, in which gold is priced.
Gold rose on Thursday, over the above mentioned concerns. Along with these, prices also got a further boost after U.S. weekly jobless claims rose more than expected last week.
The United States and China were expecting to sign an interim deal to ease resentment in their in going trade dispute. But the Asia-Pacific economic co-operation summit in Chile next month got cancelled thus resulting in rising uncertainties and as a result boosting gold prices.
Markets still have a bullish sentiment for gold. With President Trump going in for impeachment trial, there is a new twist in US-China trade deal. AS unofficially China said that they would be reluctant to go in for any deal.
With deteriorating China data and no stimulus on the horizon, there was a reaction and gold got some edge and moved closer to 3-4 weeks high.
I believe that a dip to $1508 would be a good mark to buy gold.
For prices to accelerate, we need to break above $1,515, and if that is done, we should be able to get more fresh vibes coming into the market.