From Barron's Focus on Funds:
A growing number of high-profile investors have come to embrace the bullish case for gold, but the precious metal took it on the chin Wednesday afternoon as traders scrambled to adjust for the possibility that U.S. interest rates could rise as soon as next month.
Wednesday’s knee-jerk reaction to FOMC minutes was to sell gold.
Minutes from the most recent meeting of Fed policymakers, released just minutes ago, seem to leave open the door of a rate increase next month, something few expected even last week. Gold’s knee-jerk reaction was to plunge. An interest rate increase would boost the dollar, a headwind for gold, and flummox investors using the metal as a hedge against central bank policy failure. TheSPDR Gold Shares (GLD) are sank 1.2%, while the VanEck Vectors Gold Miners ETF (GDX) plunged 5% in recent trading. The WisdomTree Bloomberg US Dollar Bullish ETF (USDU) jumped 0.6%.
It will be interesting to see whether the bullish narrative on gold starts to change. Russ Koesterich, head of asset allocation for BlackRock’s Global Allocation Fund (MALOX), was the latest to suggest that negative interest rates overseas and uncertainty about whether the Federal Reserve will have the economic firepower to raise interest rates incrementally throughout 2106 could lift gold prices:
“Given slow growth, a cautious Federal Reserve and the proliferation of negative sovereign yields in Japan and Europe, U.S. real rates are likely to remain low for the foreseeable future....MORE