The Fed decision could spur a new rally in gold: Strategist
New York (Jun 16) Is gold worth a buy after it surged to one-month high of $1,300 following the Fed's decision to hold firm on interest rates?
Boris Schlossberg, managing director of FX Strategy for BK Asset Management, thinks so, especially in today's low-yield environment.
"If we can break above $1,300, we could have a new rally in gold, because the market is going to essentially assume that the Fed will stay stationary until December," he said Wednesday on CNBC's "Trading Nation." "Investors are looking anywhere to park their funds where there is yield."
While gold itself doesn't produce yield, the metal has historically been what Schlossberg calls a "risk-haven repository" as investors scramble for security in uncertain, low-yield markets. Bond yields currently hover near record lows and dipped even lower after Wednesday's Fed announcement, leading gold to rally and inch toward $1,300 during intraday trading. On Thursday, it was trading at $1,307.
Low rates generally help gold because they make the metal's lack of yield look better in comparison, and they tend to be correlated to a falling U.S. dollar.
Additionally, Schlossberg says that if Britons vote to leave the European Union in next Thursday's referendum, global markets could be thrown into chaos and investors could flock to gold, especially if the dollar were to fall as it did post-Fed Wednesday.
But Eddy Elfenbein, editor of the Crossing Wall Street blog, believes investors are much better off going for equities instead of gold.
"We know that the Fed has a bias towards tightening and could take that away at any time," he said. "Plus, if you look at the alternatives in the equity markets, the S&P 500 is giving you 6 basis points more than the 10-year, and gold which doesn't yield anything."
"There are so many better alternatives in the equity market right now," Elfenbein said.