Fund man­agers say don’t count on the midterms to re­vive gold prices

Gulf Times Business - - BUSINESS -

It’ll take more than elec­tion up­heaval to restart gold’s rally. That’s the view of money man­agers in­clud­ing Stephen Land of Franklin Tem­ple­ton In­vest­ments, who say con­cerns that the Fed­eral Re­serve will con­tinue rais­ing rates will over­shadow any short-term boost to haven de­mand from midterm vote.

The dol­lar and US-China re­la­tions are also likely to re­assert them­selves as cat­a­lysts, they say.

The rally in gold, which in Oc­to­ber posted its first monthly gain since March, fiz­zled last week as a re­silient dol­lar and a re­bound in global eq­ui­ties un­der­cut de­mand. US data last Fri­day showed hedge funds added to their net-bear­ish po­si­tion, and the metal was lit­tle changed.

The elec­tion “won’t be the key driver around gold,” Land, the San Mateo, Cal­i­for­ni­abased port­fo­lio man­ager at the Franklin Gold and Pre­cious Met­als Fund, said in a tele­phone in­ter­view November 2. “It’s the out­come of the po­ten­tial trade war with China, the over­all health of the Chi­nese econ­omy and the Fed ac­tions and how that re­lates to the US and the strength of the dol­lar.”

Higher rates di­min­ish the ap­peal of gold, which doesn’t pay in­ter­est, while a stronger dol­lar curbs de­mand for the metal as an al­ter­na­tive as­set. Both forces have helped push gold fu­tures down al­most 6% this year.

The buoyant green­back has also eaten into de­mand for the metal as a haven from mar­ket volatil­ity, even as the US-China trade war heated up and geopo­lit­i­cal turmoil such as Brexit sim­mered. Vice Pres­i­dent Wang Qis­han said Bei­jing re­mained ready to dis­cuss a trade so­lu­tion with the US, but cau­tioned the coun­try wouldn’t be “bul­lied and op­pressed.”

Gold fu­tures rose 1.6% in Oc­to­ber as global eq­ui­ties slumped. An­a­lysts and traders in a weekly Bloomberg sur­vey were split on the out­look for prices amid un­cer­tainty about this week’s vote.

The fu­tures were steady at $1,231.40 an ounce, af­ter eas­ing 0.1%.

“Over­all, in our base sce­nario, US growth should re­main firm and rates should con­tinue to move up, al­beit grad­u­ally, weigh­ing on gold,” Luc Luyet, cur­rency strate­gist at Pictet Wealth Man­age­ment said in an e-mail.

The scep­ti­cism on gold’s out­look comes even amid signs of ner­vous­ness in mar­kets.

Large spec­u­la­tors have cut their bets that mar­ket turmoil will ease, turn­ing net long VIX fu­tures for the first time since May, ac­cord­ing to the lat­est Com­mod­ity Fu­tures Trad­ing Com­mis­sion data. The Cboe Volatil­ity In­dex rose to an aver­age of 19.35 in Oc­to­ber, the high­est since the Fe­bru­ary spike, as global eq­ui­ties sank the most in six years.

Fed­eral Re­serve Chair­man Jerome Pow­ell and his col­leagues are ex­pected to hold pol­icy steady at a two-day meet­ing that starts Wed­nes­day, right af­ter the US vote, while leav­ing the door ajar to a rate in­crease at their fi­nal gather­ing of 2018. So far this year, the Fed has raised rates three times.

Af­ter the elec­tion, the US econ­omy will still have a strong jobs mar­ket, ac­cord­ing to Axel Merk, man­ager of the $135mn VanEck Merk Gold Trust.

“This means the Fed will con­tinue to hike, more so than is cur­rently priced into the mar­kets,” he said in an e-mail November 2. “The price of gold will do what it has been do­ing of late: gy­rate.”

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