(Kitco News) – Now is the time for investors to look at building a strategic position in the gold market, according to a market strategist, as prices are expected to struggle in the near term due to rising bond yields on the short side of the market. curve.
In an interview with Kitco News, Ronald-Peter Stöferle, managing partner and fund manager at Incrementum AG and one of the authors of the annual In Gold We Trust report, said he expects lower gold prices in the near term as markets begin to take further aggressive monetary policy measures. of the Federal Reserve.
Continued higher inflation has led markets to price in a 21% chance that the Federal Reserve will raise rates by 50 basis points next month. These shifting expectations have pushed yields on US two-year bonds above 4.6%, the highest level since 2007.
At the same time, the yield on one-year bonds is above 5%. Stöferle noted that when looking at inflation expectations, real bond yields are currently showing positive returns.
“This is a difficult environment for gold and I expect further downside risks in the coming weeks,” he said.
The comments come after gold futures ended last week in neutral territory at around $1,850 an ounce in April. The markets are closed on Mondays for the long Presidents’ Day weekend.
However, Stöferle added that the gold market remains relatively strong despite the selling pressure. He explained that he sees the price action and the resilient strength of gold as the market denouncing the central bankers’ aggressive rhetoric.
The rise in shorter bond yields has pushed the yield curve inverted to its widest level in 40 years. Stöferle said this market trend indicates it is only a matter of time before the US enters a recession and the Federal Reserve is forced to wind down its aggressive tightening.
Stöferle said he expects that once unemployment starts to rise, the Fed will ease interest rates quickly.
“In the 2022 In Gold We Trust, we said central bankers are pigeons in aggressive clothing and nothing we have seen has changed this view,” he said. “Once credit markets tighten, there’s no way the Fed or any central banker will continue to be aggressive.”
As market optimism grows that the US can avoid a recession, Stöferle said many investors have underestimated the slowdown in monetary policy. He added that the Federal Reserve has already made a policy mistake and it is only a matter of time before something breaks.
Not only has the Federal Reserve raised interest rates by 450 basis points during this tightening cycle, but it has also cut its balance sheet by $500 billion. Stöferle said it is only a matter of time before the economy feels the effects of reduced liquidity in the market.
“It’s like being in a room that’s losing oxygen. You might not notice anything at first, but then it gets harder to breathe. Soon you’re rushing to the exits, hoping to get out before it’s too late ,” he said. . “Not only is the risk of a recession increasing, but I think we could have a major fiscal crisis.”
In this environment, Stöferle said now is the time to take advantage of lower gold prices and build a strategic position ahead of the second half of the year. He added that one strategy investors should look at is building a position through cost averaging, where you try to buy at progressively lower prices.
Despite lower prices in the near term, Stöferle said gold prices are still on track to end the year above $2,000 an ounce.
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