Gold’s blistering start to this year might just be the beginning, according to Taurus Wealth Advisors Pte, which said bullion might prove to be this year’s best performing asset as central banks exhaust their firepower.
There is a high probability the metal might surge to between US$1,350 and US$1,400 per ounce by the end of the year, said Rainer Michael Preiss, a strategist at Singapore-based Taurus, a multifamily office with US$1.4 billion under management.
A rally to US$1,400 needs a 13 percent gain from Monday, or 32 percent over the year.
Bullion has soared this year as speculation that global growth is faltering prompted traders to cut bets on higher US borrowing costs. The spread of negative interest rates in Japan and Europe has also added to gold’s appeal, with investors boosting holdings.
Evolution Mining Ltd, Australia’s second-biggest producer, last month said a loss of faith among investors in central bankers’ ability to deal with challenges was spurring gains.
“Gold is the ultimate beneficiary when central banks run out of ammunition and more stimulus and negative interest increasingly become counterproductive,” Preiss said in an e-mail in response to questions.
It is “already outperforming global equities as well as most corporate bonds,” he added.
Bullion has topped the Bloomberg Commodity Index this year, rising 17 percent to US$1,243.73 per ounce yesterday. That compares with the 6.8 percent loss in global stocks, 0.8 percent decline in Brent crude and the US dollar’s 0.4 percent dip.
Last month, gold posted the biggest monthly rise in four years, while assets in exchange-traded funds surged 12 percent, the most since 2009.
Further inflows into bullion-backed exchange-traded funds are expected as prices gain, Preiss said.
Taurus advises a strategic allocation of 5 percent to bullion and a further 2 percent to 3 percent for a basket of miners’ shares, with a higher allocation of 15 percent for tactical, trend-following portfolios.
Not everyone is bullish.
Goldman Sachs Group Inc has said the concerns that spurred gold’s gains this year are not warranted, and prices will slump back to US$1,000 in 12 months as US interest rates rise.
Bullion might end the year at between US$1,000 and US$1,150, Oversea-Chinese Banking Corp (OCBC, 華僑銀行) economist Barnabas Gan said last month.
“Our bearish view for gold is very much underpinned by the [US Federal Reserve] rate hike in 2016,” Gan said yesterday in an interview on Bloomberg Television, reiterating his outlook.
“We’re still calling for a Fed rate hike at least once this year, one to two more beyond that if the growth production and the recovery story is still on track,” Gan said.
OCBC was ranked by Bloomberg as the top precious metals forecaster for the final quarter of last year.
After the Fed raised rates in December last year for the first time in almost a decade, market turmoil this year prompted traders to cut the odds on a further move. There is now just a 10 percent chance of an increase this month, down from 51 percent at the start of the year.
Federal Reserve Bank of Cleveland President Loretta Mester, a voter on policy this year, said last week the fundamentals underlying the US remain strong and the central bank should stay on track for a gradual tightening.
For Preiss, even if the Fed does act, gold’s rally would probably be sustained.
“The Fed might have two more interest rate hikes in store potentially, but even in such an environment, gold could hold up and even rally further as the market narrative is changing,” Preiss said.
“Long gold might be the best macro trade to the upside for 2016 and beyond,” he added.
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