Fear not gold investors, 2016’s going to be just fine even as Janet Yellen pulls the trigger on interest rates, according to Southeast Asia’s biggest bank.
DBS Group Holdings is overweight bullion heading into next year as it forecasts the Federal Reserve will raise US rates only gradually, with the cycle peaking at a lower level than earlier rounds. While the Singapore-based bank hasn’t set a price target, the bullion outlook is based on expectations of an initial hike in the first quarter.
“A gradual hiking path by the Fed, and the general view of eventually lower US rates, compared with previous cycles, are positive for the yellow metal,” said Manish Jaradi, senior investment strategist at DBS’s Chief Investment Office. DBS raised gold to neutral in the second quarter, then turned overweight in mid-August, Jaradi said in an e-mail.
Gold investors are fixated on when the US central bank will start to raise borrowing costs for the first time since 2006, with prices gaining to highest level since June on Wednesday amid expectations the increase may be pushed back. Fed officials delayed raising in September amid global growth concerns and as inflation languished. DBS’s stance contrasts the view from cross-town rival Oversea-Chinese Banking Corp., where top-ranked analyst Barnabas Gan sees lower prices should rates climb.
Higher Rates
“As higher rates are inevitable, the question is whether economic weakness terminates the rate-hiking cycle far quicker than expected,” Jaradi said.
Gold for immediate delivery traded at $1,183.15 an ounce at 8:57 a.m. Sydney time, according to Bloomberg generic pricing. It’s little changed in 2015 following losses in 2014 and 2013, when investors’ holdings shrank and buoyant equity markets lured away funds.
The Fed’s last cycle of tightening started in 2004, with rates topping out at 5.25% in 2006 and lasting into 2007 before being pushed to near zero amid the financial crisis. Chair Yellen said last month the bank is prepared to raise this year and additional increases will be gradual.
Rate Outlook
The odds of an increase this month stand at just 4%, with 27% seeing a move by year-end and 49% by March, futures contracts indicate. Higher interest rates can erode the appeal of holding metals that don’t offer yields. The Fed’s Beige Book issued Wednesday showed modest growth and tightening labour markets.
The Fed’s Beige Book on Wednesday showed modest growth and tightening labour markets. Fed Bank of New York President William C. Dudley said Thursday the central bank should still raise rates this year so long as the economy stayed on track, while cautioning that some recent data signaled growth may be slowing.
For OCBC’s Gan, ranked by Bloomberg as the most-accurate gold forecaster in the third quarter, the outlook for steady improvement in the largest economy will probably prompt the Fed to raise, hurting bullion. Gold is seen trending lower in each quarter of 2016 to average at US$950 ($1,312) in the final quarter, Gan wrote in on Oct. 7, based on an outlook for an increase in rates. If the Fed actually holds in 2015, prices may climb, he’s said.
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DBS Group Holdings is overweight bullion heading into next year as it forecasts the Federal Reserve will raise US rates only gradually, with the cycle peaking at a lower level than earlier rounds. While the Singapore-based bank hasn’t set a price target, the bullion outlook is based on expectations of an initial hike in the first quarter.
“A gradual hiking path by the Fed, and the general view of eventually lower US rates, compared with previous cycles, are positive for the yellow metal,” said Manish Jaradi, senior investment strategist at DBS’s Chief Investment Office. DBS raised gold to neutral in the second quarter, then turned overweight in mid-August, Jaradi said in an e-mail.
Gold investors are fixated on when the US central bank will start to raise borrowing costs for the first time since 2006, with prices gaining to highest level since June on Wednesday amid expectations the increase may be pushed back. Fed officials delayed raising in September amid global growth concerns and as inflation languished. DBS’s stance contrasts the view from cross-town rival Oversea-Chinese Banking Corp., where top-ranked analyst Barnabas Gan sees lower prices should rates climb.
Higher Rates
“As higher rates are inevitable, the question is whether economic weakness terminates the rate-hiking cycle far quicker than expected,” Jaradi said.
Gold for immediate delivery traded at $1,183.15 an ounce at 8:57 a.m. Sydney time, according to Bloomberg generic pricing. It’s little changed in 2015 following losses in 2014 and 2013, when investors’ holdings shrank and buoyant equity markets lured away funds.
The Fed’s last cycle of tightening started in 2004, with rates topping out at 5.25% in 2006 and lasting into 2007 before being pushed to near zero amid the financial crisis. Chair Yellen said last month the bank is prepared to raise this year and additional increases will be gradual.
Rate Outlook
The odds of an increase this month stand at just 4%, with 27% seeing a move by year-end and 49% by March, futures contracts indicate. Higher interest rates can erode the appeal of holding metals that don’t offer yields. The Fed’s Beige Book issued Wednesday showed modest growth and tightening labour markets.
The Fed’s Beige Book on Wednesday showed modest growth and tightening labour markets. Fed Bank of New York President William C. Dudley said Thursday the central bank should still raise rates this year so long as the economy stayed on track, while cautioning that some recent data signaled growth may be slowing.
For OCBC’s Gan, ranked by Bloomberg as the most-accurate gold forecaster in the third quarter, the outlook for steady improvement in the largest economy will probably prompt the Fed to raise, hurting bullion. Gold is seen trending lower in each quarter of 2016 to average at US$950 ($1,312) in the final quarter, Gan wrote in on Oct. 7, based on an outlook for an increase in rates. If the Fed actually holds in 2015, prices may climb, he’s said.
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