Cen­tral Banks’ Wa­ver­ing Stand Makes In­vestors Back Gold Now

Bul­lion ral­lied 17% in 2016 amid mar­ket volatil­ity, con­cern on global growth

The Economic Times - - Commodities Plus -

New York: Gold just picked up an­other backer in the form of In­de­pen­dent Strat­egy’s David Roche, who says that he’s con­cerned enough about cen­tral banks’ pol­icy-mak­ing to re­verse his bear­ish po­si­tion.

“We’ve in­creased our hold­ings of gold, now that’s af­ter a long, long time be­ing short,” Roche, who’s pres­i­dent of the Lon­don­based group, said on Tues­day. “The rea­son for that is be­cause we don’t know what cen­tral banks are go­ing to do next.”

Bul­lion has ral­lied 17% in 2016 amid fi­nan­cial-mar­ket volatil­ity and in­vestor con­cern about the out­look for global growth. Cen­tral banks in Europe and Ja­pan have in­ten­si­fied their drive to spur their economies, em­brac­ing neg­a­tive in­ter­est rates, and while the Fed­eral Re­serve raised bor­row­ing costs late last year, it’s yet to boost them fur­ther. BNP Paribas has said gold may gain to $1,400 an ounce, cit­ing the risk of cen­tral banks’ over­reach.

In­vestors may turn to gold as an “in­surance pol­icy” against the un­cer­tainty sur­round­ing cen­tral banks’ poli­cies, said Roche, who was un­til 1994 head of re­search and global strate­gist at Mor­gan Stan­ley. While the Bank of Ja­pan will con­tinue to try to get money cir­cu­lat­ing to get in­fla­tion back to tar­get, that won’t pro­duce fur­ther growth, he said. Gold for im­me­di­ate de­liv­ery traded lit­tle changed at $1,237.45 an ounce at 1:38 pm in Sin­ga­pore. Hold­ings in ex­change-traded prod­ucts have surged 20% this year, ac­cord­ing to data tracked by Bloomberg. Roche didn’t give a fore­cast for prices.

In­vestors are look­ing to two meet­ings this week. Although the Fed­eral Re­serve isn’t ex­pected to raise rates on Wed­nes­day, in­vestors are wait­ing for guid­ance on the fu­ture tra­jec­tory of any in­creases. — Bloomberg

Ran­jeetha Pakiam & Jas­mine Ng ANIMISHA

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