Gold’s blistering start to 2016 may be just the beginning, according to Taurus Wealth Advisors Pte, which says bullion may prove to be this year’s best performing asset as central banks exhaust their firepower.
There’s a high probability the metal may surge to $1,350-to-$1,400 an ounce by the yearend, said Rainer Michael Preiss, a strategist at Singapore-based Taurus, a multi-family office with $1.4 billion under management. A rally to $1,400 needs a 13% gain from Monday, or 32% over the year, Bloomberg reported.
Bullion has soared in 2016 as speculation that global growth is faltering prompted traders to cut bets on higher US borrowing costs. The spread of negative interest rates in Japan and Europe has also added to gold’s appeal, with investors boosting holdings. Evolution Mining Ltd., Australia’s second-biggest producer, said last month a loss of faith among investors in central bankers’ ability to deal with challenges was spurring gains.
“Gold is the ultimate beneficiary when central banks run out of ammunition and more stimulus and negative interest increasingly become counterproductive,” Preiss said in an email in response to questions. It’s “already outperforming global equities as well as most corporate bonds.”
Top Commodity
Bullion has topped the Bloomberg Commodity Index in 2016, rising 17% to $1,238.73 an ounce on Tuesday. That compares with the 6.7% loss in global stocks, 1.3% decline in Brent crude and the dollar’s 0.2% dip. Last month, gold posted the biggest monthly rise in four years while assets in exchange-traded funds surged 12%, the most since 2009.
Further inflows into bullion-backed ETFsare expected as prices gain, said Preiss. Taurus advises a strategic allocation of 5% to bullion and a further 2% to 3% for a basket of miners’ shares, with a higher allocation of 15% for tactical, trend-following portfolios.
Not everyone is bullish. Goldman Sachs Group Inc. has said the concerns that spurred gold’s gains this year aren’t warranted, and prices will slump back to $1,000 in 12 months as US interest rates rise. Bullion may end the year at between $1,000 and $1,150, Oversea-Chinese Banking Corp.’s economist Barnabas Gan said last month.
After the Federal Reserve raised rates in December for the first time in almost a decade, market turmoil in 2016 prompted traders to cut the odds on a further move. There’s now just a 10% chance of an increase this month, down from 51% at the start of the year.
Fed Bank of Cleveland President Loretta Mester, a voter on policy this year, said last week the fundamentals underlying the US remain strong and the central bank should stay on track for a gradual tightening. For Preiss, even if the Fed does act, gold’s rally would probably be sustained.
