By John McDonald
If you have been waiting for gold prices to fall before adding to your precious metals portfolio, you might not want to wait too much longer.
Thanks to global geopolitical uncertainty, ongoing and unresolved trade tensions between the U.S. and China, and Fed interest-rate policies that boggle the mind, most analysts agree the recent pullback in gold prices might represent investors’ only opportunity to “buy low” in the near future.
Although gold values fell in September to 3.6 percent lower than the previous month’s six-month high, an updated blacklist of Chinese firms and falling stock prices at the end of September convinced most experts that gold would soon be heading skyward once more.
“We continue to see upside [in gold] from current levels given the potential for further deterioration in data, Fed easing, and lingering trade uncertainty,” wrote Jovi Teves, a UBS strategist, in a recent note to clients.
While hedge funds and other speculators-investors have pulled back on gold in recent weeks, the slightly lower gold prices may well be little more than a hiccup in a very extended bull run.
This is particularly likely to be the case if the Federal Reserve opts to continue its policies of easing, which involve lowering interest rates.
As rates near zero, more investors are likely to begin considering buying gold in order to hold something with an established, high value.
Another rate cut between October and December of this year could send gold prices upward quickly, while the decision to hold on reducing interest rates further could extend the pullback until the New Year.
“[The] market is going to look for plans to rate cuts down the road,” explained Bob Haberkorn, a senior market strategist with RJO Futures.
However, he added, the sell-off session could be extended if “they [the Fed] err on the side of caution.”
In early October, Fed chairman Jerome Powell indicated he is open to further rate cuts in order to “fend off global economic risks.” However, he hedged this statement a bit with his trademark insistence that the Fed will “act as appropriate” while the economy continues to expand.
Powell cited two instances during the 1990s when the U.S. economy slowed, then, he argued was bolstered by Fed interest-rate cuts and “gained steam” again. “There is no reason why the [economic] expansion can’t continue,” he said.
With a publicly stated mindset like that regarding interest-rate cuts and extended economic expansion, many analysts believe Powell might consider another rate cut before the end of the year if he does not feel the economy has finished, as he describes it, “gathering itself.”
He also noted recent data revisions indicate U.S. job growth is actually “moderate” instead of “booming” and that manufacturing may be contracting.
If investors insist on waiting until gold hits a relative “bottom” in price during this contraction, they will probably have waited too long.
Source: The Wall Street Journal