Peter Schiff, CEO of Euro Pacific Capital, predicts that gold won’t fall much farther from current levels because there has been so much speculation for so long about a Federal Reserve rate hike that it doesn’t really matter now when the central bank acts.
“The tragic terrorist attack on Paris spurred a rush of gold buying on Monday morning, showing that investors still quickly turn to gold during times of uncertainty,”
he wrote for CNBC.com.
“Yet this wasn't enough to push the price back over $1,200, and the market remains pessimistic about gold's prospects. Many are now saying that a 25 basis-point hike in December would be the final nail in gold's coffin, sending the metal down to who knows where.”
Gold traded near a five-year low Wednesday. Gold has dropped almost 10 percent this year on the outlook for higher rates, which curb the metal’s appeal because it doesn’t pay interest.
“However, there is very little reason to believe that gold will fall much further than where it is now, even if the Fed does hike rates in December. There is a powerful case to be made that the last couple of months may have formed a double bottom in gold that provides a very good entry point for long-term investors,” he wrote.
“The Fed either raises rates by 25 basis points in December, or it doesn't. Both scenarios are actually bullish for gold,” he explained.
“Doing nothing is good for gold for obvious reasons. If the Fed fails to raise, after having allowed the markets to take firm hold of the belief that it would, then the Fed would lose all credibility. Investors would rightly conclude that the Fed was bluffing all along, and that we are stuck at zero for the foreseeable future. This would surely ignite a gold rally for the ages,” he wrote.
“But if they actually do pull the trigger, many are assuming gold will keep falling. This ignores the fact that investors have been expecting a rate hike for quite some time, and that gold has already fallen 40 percent in anticipation of that hike," he wrote.
"The gold market has already discounted the rate increase, likely factoring in substantially more than 25 basis points. I believe that several hundred basis points of tightening may already be baked into the current price of gold. But a 25 basis-point increase is all that we are likely to see from the Fed for quite some time.”
Gold for immediate delivery fell to $1,064.55 an ounce on Wednesday, the lowest level since February 2010, according to
Bloomberg generic pricing. The metal, which is headed for a third annual decline as investor holdings drop and the dollar appreciates, has averaged about $1,172 so far this year.
The benchmark 30-member Philadelphia Stock Exchange Gold and Silver Index, which includes Barrick Gold Corp. and Newmont Mining Corp., has dropped 36 percent this year as lower metal prices cut the outlook for producer profits.
“Another desultory day for the precious-metals complex, with gold and platinum prices making multi-year lows,” David Govett, head of precious metals at broker Marex Spectron Group in London, said by e-mail.
“Not only is there virtually zero interest in precious from an investment standpoint, the pressure on commodities as a whole is ensuring that prices remain very weak despite these low levels,” he told Bloomberg.
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