Now Is A Good Entry Level For Gold: World Gold Council
(Kitco News) - Gold’s current price presents an attractive entry point asinvestors should expect macro trends to boost the yellow metal’s relevance inthe coming months, according to the World Gold Council (WGC).
“Gold’s recent pullback is supportive of consumer demand, aslow prices tend to spur buying; at the same, it may provide attractive entrylevels for investors,” the WGC said in its latest report Thursday.
The analysts at the WGC make the case that three criticalmacroeconomic forces will drive gold’s behavior in the second half of 2018:positive but uneven global economic growth, trade wars, and rising inflationand an inverted yield curve.
“Gold’s long-term returns are positively linked to economicgrowth, but its short-term performance is more sensitive to risk anduncertainty,” the report said, “And gold's dual nature could benefit from keymacroeconomic trends developing in the second half of the year.”
According to the council, global growth has generally beenincreasing over the past few years, and this trend is likely to continue butwill not be synchronized across regions.
China, India, and the U.S. may all see an economic expansionthat would be beneficial for consumer demand for gold, said the report.
By contrast, European markets could likely remain soft aspolitical turmoil and uncertainty around Brexit loom on investors’ radars.
Despite escalating trade war rhetoric, the equities marketshave largely shrugged off risks or at least discounted its long-term effects,said the WGC.
However, tariffs could eventually weigh down on economicgrowth and weaken the dollar, which would be a positive for gold, according tothe WGC.
Inflation has been slowly rising and is now at 2.9% in theU.S., which is higher than the 2% target inflation rate set by the FederalReserve. The WGC said that inflation may continue to increase in light ofhigher tariffs being imposed.
“Looking forward, the expansion of protectionist economicpolicies has significantly increased the risk that inflation will acceleratefurther. And companies facing higher tariffs will likely pass the bill toconsumers,” the report said.
Analysts at the WGC added that historically, investors haveused gold as an inflation hedge and the yellow metal has seen prices increasesubstantially when inflation rises above 3%.
Gold has had a strong start to the year but has seen alackluster performance in the second quarter as investors flocked to riskassets, particularly tech stocks.
The WGC noted that three factors have likely held gold back:a strengthening U.S. dollar, higher investor threshold for headline risk, andsoft physical gold demand.
By David LinFor Kitco News
Follow @davidlinMTL
dlin@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.