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“Quantitative Tightening” and sluggish bonds could see gold revisit $1,000 says latest report

According to a recent report the Federal Reserve’s “quantitative tightening” – the gradual shrinking of its balance sheet – is set to mark a global recovery, with mixed results for gold. Just as QE caused shares to rise and bonds to fall (temporary inflation), the fear is that QT does the opposite,” writes Charlie Morris in this month’s Atlas Pulse newsletter. “Yet bonds aren’t rising, they’re falling. That’s not just in the US but in Japan, Europe, the UK and everywhere else. Something has happened that few thought possible. The global economy has reawakened.”

Morris, chief investment officer at Newscape Group and former head of HSBC’s absolute return fund, noted gold maintains its position as a non-yield bond, and therefore may be in jeopardy as quantitative easing has buoyed equities while yields now look set to rise with inflation.

The Atlas Pulse model requires three criteria for gold to be in a bull market: low interest rates, gold beating currencies and gold beating the S&P 500. “The problem here is that while real rates are still low, they are now rising,” says Morris. While the trend for gold in global currencies is officially flat, it’s no longer signalling strength: “What had seemed like a healthy recovery since 2014, now appears to be turning down. The trend isn’t negative, but it will be if this bond crash continues.”

Finally Morris notes gold has not beaten stocks since 2011. “I feel this is an extremely important indicator as it represents money flows. It picks up what asset allocators favour. If equities are strong, then gold loses out and vice versa. The best bit about this indicator is that it has a history of trending for long periods of time, without giving false signals. It therefore sends a consistent message that it hasn’t been rising and explains why Atlas Pulse has not called for a gold bull market since 2012.”

Given the outlook remains “becalmed” July’s report notes caution. “There’s no smoking gun here, just a reaffirmation that interest in gold is waning. The ETF flows are still mildly positive, but I doubt that lasts as they follow the falling interest seen in the futures market,” writes Morris. “The short sellers are waking up but have the ammo to do so much more. If the speculators did their worst from here, I’m sad to say that gold could revisit $1,000.”

The full report can be found here- http://www.atlaspulse.com/wp-content/uploads/2017/07/Atlas-Pulse-July-2017.pdf

Photo: Statues of the two symbolic beasts of finance, the bear and the bull, in front of the Frankfurt Stock Exchange. Credit: Eva K, licensed under CC BY-SA 2.5

Link to this article: : http://www.goldmadesimplenews.com/gold/quantitative-tightening-and-sluggish-bonds-could-see-gold-revisit-1000-says-latest-report-13264/

Posted by on Jul 10 2017. Filed under Analysis, Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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