MANY investors see gold as a hedge or store of value against inflation. Yet, prices of the precious metal have been volatile lately despite the rise in global inflation expectations.
There are different forces are at play, driving the volatility, analysts note.
On one hand, being a “safe haven”, gold appears unattractive in a positive economic environment, as investors seek higher exposure to risk-on assets such as equities for better returns. Hence, with the global economy currently rebounding from the fallout of Covid-19, gold has not exactly been a favoured asset class.
On the other hand, negative real interest rates amid higher inflation have helped gold prices recover initial losses in the year and could continue to support this trend.
ALA Advisors chief investment officer Dar Wong tells StarBizweek he expects gold prices to recover in the second half of 2021 and revisit the US$2,000 (RM8,400) per ounce level.
The Singapore-based veteran trader expects strong buying interest to emerge if the commodity prices fall to around US$1,720-US$1,750 (RM7,052- RM7,175) an ounce.
“Generally, traders are still focusing on United States stock markets in the July-August season for earnings reports. After the buying sentiment (for equities) simmers down, traders will return to precious metals as their next rotation,” Wong says.
“Moreover, we foresee the US Dollar Index will likely weaken below the 90-point benchmark in August due to the next stimulus rollout. This will lift gold prices into a new buying cycle,” he adds.
Gold prices – spot and futures – are currently hovering around the US$1,800 (RM7,380)-an-ounce level.
The commodity rose to its highest-ever near US$2,075 (RM8,507) an ounce in 2020 amid the spread of Covid-19 and central banks worldwide easing their monetary policies to support the economy.
Moving into 2022, Wong says, market liquidity could tighten from rising bond yields.
“This might inject a roller-coaster trend into gold prices, with the commodity expected to reach new highs and then see a quick correction thereafter,” he says.
“Despite the volatile cycle, we project gold prices will ascend gradually in a wave-like pattern,” he adds.
Similarly, while Phillip Futures Sdn Bhd dealer Tan Jenn Yuan remains positive on gold, he expects upside for the precious metal to be limited due to a potential rate hike by the US Federal Reserve (Fed) in response to rising inflation and economic recovery from the Covid-19 crisis.
“Metals tend to be more sensitive to interest rates than inflation data,” he said.
He notes that non-yielding gold tends to gain in a low interest-rate environment, hence, anticipation of monetary policy tightening by the Fed could weigh on gold prices.
Nevertheless, Tan expects gold prices to trend upwards for the remainder of 2021.
He, however, does not expect the commodity to rise…