Top metals forecaster says Fed will still tighten, hurting gold price

Washington (Aug 21)  The top-ranked precious metals forecaster said the Federal Reserve will still raise U.S. interest rates this year and that’ll hurt gold, standing by his outlook even as bullion surged amid a global rout in stocks and commodities.

“The Fed rate-hike story is the key reason as to why we are holding our bearish view for gold at $1,050 an ounce at the end of the year,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp., said on Friday. “The Fed rate hike, if it happens either in September or December, will really be the factor that market watchers are actually looking for.”

Bullion’s risen every day this week, gaining to the highest in more than a month, after Fed policy makers signaled concern over low inflation, prompting investors to scale back bets that rates will rise next month. Stocks, emerging-market currencies and most commodities sank after China devalued the yuan last week and concerns increased that global growth may falter, boosting demand for gold as a haven. Gan’s view suggests these developments won’t prompt the Fed to delay tightening to 2016.

The forecast increase in U.S. borrowing costs “will translate into a stronger dollar and, vice versa, will translate into weaker gold prices,” Singapore-based Gan said in an interview on Bloomberg Television.

Gold for immediate delivery rallied as much as 1.4 percent to $1,168.39 an ounce on Friday, the highest level since July 7, and was at $1,164.55 at 6:33 a.m. in London, according to Bloomberg generic pricing. It’s 4.5 percent higher this week, headed for the biggest weekly gain since January.

ETP Holdings

Assets in bullion-backed exchange-traded products expanded this week as equities tumbled, with the Standard & Poor’s 500 sinking by the most in 18 months on Thursday. The holdings rose 0.2 percent to 1,518.33 metric tons yesterday, the highest level since Aug. 4, according to data compiled by Bloomberg.

Global stocks as tracked by the MSCI All-Country World Index lost 3.1 percent this week, set for the biggest loss this year. A preliminary Chinese manufacturing gauge fell to the lowest in more than six years, according to private data Friday.

Gold remains 1.7 percent lower this year after its rebound this week. Prices dropped to $1,077.40 an ounce in July, the lowest level in more than five years. Gan’s year-end target implies a drop of almost 10 percent from current prices.

Singapore’s OCBC was the most-accurate precious metals forecaster over the past three quarters, according to rankings complied by Bloomberg.

Soirce: Bloomberg