Favorable Outlook for Gold—Murenbeeld
The comments below are an edited and abridged synopsis of an article by Lawrie Williams
In Gold Monitor, Martin Murenbeeld notes the breakdown in trade talks between the US and China and the latest Fedspeak as positive factors for gold. He says we have seen an inflow of funds into gold ETFs, and discusses Ray Dalio’s Bridgewater Associates, which has increased its gold ETF holdings.
Martin sees other positives for gold: More equity market volatility; more slippage in US growth; Fed rate cuts; and the prospect that China may continue to diversify out of Treasuries into gold (as Russia has done).
The gradual decline of the yuan against the dollar over the past year has partly mitigated the effects of the initial tariffs on the cost of Chinese goods in the US, while a further decline in parity to above 7:1 could also allay some of the newly imposed higher tariff levels.
Meanwhile, the Fed has quashed fears of any interest rate increase this year. The current odds are on a possible rate cut later this year, which would provide another boost for gold.
The EU will announce the results of trans-European polls for membership of the new European Parliament on May 27. Anti-EU parties may make significant inroads, particularly in the UK, bringing another geopolitical uncertainty to the fore that could be positive for gold.
Add to the above a host of military flashpoints globally, any of which could blow up into full-scale conflict at any time, plus a significant number of ISIS-indoctrinated individuals now on the loose, and the world is an uncertain place. This could bring safe-haven demand to the fore, and with the dollar seen by many as overvalued, demand for gold could increase. There could be a boost to the gold price in the second half of the year.
BMG believes that even though “gold-backed” ETFs are a product class that have grown strongly in scale and popularity over the last decade, it is important to understand the mechanics of these investment vehicles and to appreciate what they can and cannot provide to gold investors.
Holding a gold-backed ETF is designed for trading gold not for owning gold. It is important to read both the prospectus and the Authorized Participant Agreements in order to understand where the gold comes from and who ultimately has a claim on the ETF gold.