Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand, according to Incrementum AG, which says that the precious metal may be in the early stages of a bull market.
Prices may climb to $1,400 to $1,500 an ounce this year, said Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101.5 million). Spot bullion”•which was at $1,249 on Wednesday”•last traded at $1,400 in September 2013.
Gold has climbed this year as investors weigh risks that President Donald Trump won’t be able to implement his agenda, adding to uncertainty surrounding European elections and the Brexit process. Against that backdrop, investors are on alert for signs of faster inflation, with the Federal Reserve’s preferred gauge jumping recently to near the bank’s target. Policy makers raised rates this month, and kept forecasts showing two more hikes in 2017.
“For the short term, it’s in a bit of a technical no-man’s land, we also see that seasonality is not really favorable,” Stoeferle said in an interview in Singapore on Tuesday. “The real pick up in momentum might start beginning of summer. It’s in the very early stages of the bull market, so everybody is still kind of cautious or slightly negative, but this will improve.”
Bullion is traditionally regarded as an effective hedge against rising inflation, gaining in value to help holders preserve their wealth. While higher US rates typically buoy the dollar and can hurt bullion, the commodity has advanced during previous hiking cycles. Trump’s recent talking down of the greenback’s strength should also be positive for gold, according to Stoeferle.
Stoeferle manages 30 million Swiss francs in the renamed Incrementum Inflation Diversifier Fund, which he started in 2014 with partner Mark Valek. The fund uses its own inflation indicator, which is currently neutral to slightly negative. “As soon as we get the signal for rising inflation, we’ll invest in inflation-sensitive assets again such as silver equities, gold equities, energy and the broad commodity complex,” Stoeferle said.
Not everyone is bullish. Societe Generale SA recommends selling on rallies as it sees gold declining amid further tightening by the Fed and only limited impact from political events.