Experts Say: 2017-03-17

Wayne Gordon - Executive Director of UBS AG Wealth Management

Gold Seen Climbing as Yellen Sets Scene for Negative Rates

Gold will rise after the Federal Reserve pledged to stick to its gradual pace of tightening as negative real interest rates deepen and weigh on the dollar, according to Wayne Gordon, executive director for commodities and forex at UBS Group AG's wealth management unit.

The Fed raised rates by a quarter percentage-point Wednesday, and policy makers penciled in two more quarter-point increases this year and three in 2018, unchanged from projections in December. Chair Janet Yellen said the central bank was willing to tolerate inflation temporarily overshooting its 2 percent goal and intended to keep its policy accommodative for “some time.”

“Last night was really setting the scene for the next three-to-six months,” Gordon said in a Bloomberg TV interview. “Yellen was very, very clear” that although she sees risks to the economy as balanced and sounded more optimistic, she's going to stick to three rate hikes this year and three next year, he said. “That means real interest rates go deeper into negative territory in the U.S., that means a weaker U.S. dollar and it means a better gold price.”

Gold is up 7 percent this year as investors bought haven assets amid political risks such as Donald Trump's presidency, elections in Europe and the Brexit process. Precious metals are top of Morgan Stanley's commodity picks. But Societe Generale SA recommends selling on rallies as it sees gold declining amid further tightening by the Fed and limited impact from political events.

Published: 2017-03-17
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