Gold faces new competition as real yields turn positive – USBWM

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(Kitco News) – Gold market is finding some support at around $1,800 an ounce; However, according to a market strategist, the gold market faces renewed competition for the rest of the year as the Federal Reserve aggressively raises interest rates.

In an interview with Kitco News, Rob Haworth, senior investment strategist at US Bank Wealth Management, said that while inflation may have peaked, there are indications that core inflation will remain elevated through 2022, creating a difficult environment for the economy and financial markets.

In the current environment, Haworth said real assets remain an attractive hedge against inflation and market volatility.

“We’ve already seen significant multiple compression in the equity market, and that means we think we need to look at ways to move our cash flow forward, and real assets has been a key way for us to do that. “, did he declare. .

However, Haworth added that he does not see gold as an attractive real asset. He said he sees gold continuing to struggle through 2022 as the Federal Reserve plans to raise interest rates to potentially 3% by December.

The US central bank has signaled it may raise interest rates by 50 basis points over the next two weeks, and markets are pricing in the possibility of a 50 basis point move in the next three meetings.

Haworth explained that if inflation holds, rising nominal interest rates will mean that real interest rates will begin to rise.

“If we think about the last three years, one of the things that has helped gold has been negative real interest rates. We don’t have a whole curve in positive territory, but now we’re starting to see rates positive, real interest rates will start to divert some of that demand away from gold,” he said. “Investors looking for a safe haven can now find it in certain duties.”

The only thing that could reverse gold’s current downtrend is if the Federal Reserve were forced to halt and even reverse its current monetary policy plans, Haworth said.

However, he added that even if the economy slows, it should have enough momentum to avoid a recession. He said a strong U.S. labor market and healthy consumer demand are supporting economic growth, albeit at lower levels.

“There is room for the economy to work,” he said.

Although gold is not on Haworth’s list of investments, he said it makes sense for investors to have commodities in their portfolios. He added that he likes the energy sector as he expects oil and gas prices to remain high.

However, at the top of its list of investments is global infrastructure; USBWM is overweight these assets.

“There’s this demand story playing out. Even though global economic growth may be slower for the rest of the year, a further reopening of easing supply chains probably changes the story a bit. demand,” he said.

Haworth said there are mutual funds and ETFs that offer investors exposure to global infrastructure such as toll roads, airports, water treatment facilities, cell towers and data centers. data.

“We’ve been biased domestically for a while, but from an infrastructure perspective there seem to be some benefits to being global,” he said.

Warning: The opinions 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 the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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