This is how to play gold in a neutral price environment – VanEck’s Foster and Casanova
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(Kitco News) – Gold prices are again stuck below $1,800 an ounce, but an investment firm still sees some resilience in the market.
In their recent commentary, Joe Foster, portfolio manager and strategist, and Imaru Casanova, deputy portfolio manager for VanEck’s gold strategy, said they expect gold prices to hold up at current levels even if the US dollar regains momentum .
Analysts added that any US dollar weakness should provide some support for gold as investors continue to look for safe haven assets in a world of uncertainty.
The US dollar continues to be driven by rising interest rates and the US Federal Reserve’s aggressive monetary policy. However, Foster and Casanova said the tightening cycle could be near the end of its aggressive rate hikes.
“We think the Fed will likely have to halt rate hikes if the economy shrinks, but we also think there’s a significant risk that inflation will remain at elevated levels longer than expected. This would keep real interest rates in negative territory and be supportive of higher gold prices,” the analysts said.
According to the CME FedWatch Tool, markets see an almost 50/50 chance that the Federal Reserve will hike rates by 50 basis points or 75 basis points in September. Towards the end of the year, markets are seeing a slower pace of rate hikes.
“Markets still seem undecided whether this program will curb inflation or push the economy into recession. Some participants speculate that the US economy is already in recession; others expect inflation to ease earlier than previously expected end of Fed tightening cycle – which we see as a strong catalyst for gold prices.”
Although gold prices could remain neutral, fluctuating around $1,800 an ounce, VanEck said there are still opportunities in the precious metals market. Foster and Casanova said that streaming and royalty companies. The analysts said that this sector is in a good position to deal with rising inflation and input prices.
“Along with cash and bullion, royalty and streaming companies act as a defensive investment vehicle in a weak gold price environment. Exposure to this group of companies may also offer protection against cost inflation,” the analysts said.
The report noted that the VanEck gold fund currently holds Franco Nevada at 9.23% of the portfolio, Wheaton Precious Metal at 4.91% of the portfolio, Royal Gold at 2.1% and Osisko Gold Royalties at 1.56%.
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