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RJO Futures' Phil Streible: 4 Reasons Why Investors Should Avoid Gold Right Now

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By    |   Monday, 06 November 2017 11:29 AM

Phil Streible, senior market strategist at RJO Futures, is urging investors to be cautious about investing in gold as the year comes to an end.

Gold prices have gained more than 10 percent this year on U.S. dollar weakness and increased global geopolitical tensions, CNBC explained.

However, Streible offered four caution signs for savvy investors:

  • Rising expectations for rate hikes beginning in December, with three more in 2018. This could make the U.S. dollar more attractive to foreign investors, boosting the dollar and hindering gold prices.
  • Declining tensions between the U.S. and North Korea has subdued safe haven demand from investors, he said, as it appears a new safe haven trade could be found in oil on the heels of a new conflict with Iran, CNBC explained.
  • Gold imports out of India and China have weakened in the past few months.
  • Adding to his cautious outlook is a dip he's observed in the gold-silver ratio, indicating to him that investors are finding more appeal in different metals like silver, platinum and palladium.

He thinks gold could be dead money going into year-end, CNBC explained.

Gold edged back above $1,270 an ounce on Monday as a steadier tone to the dollar and a drop in bond yields tempted some buyers back to the metal after its third straight weekly decline. 

Prices remained under pressure from expectations that the Federal Reserve is on track to lift U.S. interest rates for a third time this year next month, Reuters reported.

Spot gold was up 0.1 percent at $1,271.11 an ounce early Monday, while U.S. gold futures for December delivery were up $3.20 an ounce at $1,272.40. 

The dollar steadied on Monday after its biggest weekly rise this year, while Germany's benchmark bond yield hit a near two-month low as investors awaited clues on the European Central Bank's asset purchase plans. U.S. 10-year yields also hit their weakest in two weeks.

"Gold remains stuck in a $1,263 to $1,282 range, with lower bond yields being offset by a stronger dollar," Saxo Bank's head of commodity research, Ole Hansen, said, adding that the market was watching President Donald Trump's Asia tour, which is focusing on North Korea's nuclear missile programs and trade.

"With Trump in Asia we could see North Korea talk heat up at any point," he added. "The Japanese yen was particularly weak overnight before consolidating and that is probably the key right now given the supportive turnaround seen in bonds during the past week."

Gold has drifted lower over recent weeks, pulling back 2.5 percent from its mid-October peak as expectations for a Fed interest rate increase were shored up by upbeat U.S. data.

The metal is highly sensitive to rising U.S. rates, as these increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , declined by just over five tonnes last week, data from the fund showed, after a 0.3-tonne outflow on Friday.

However, other respected experts proclaim gold is one of the few safe haven investments available today.

And while President Donald Trump’s selection for the next Chairman of the Federal Reserve System’s Board of Governors won’t exactly rock the boat, but that could be good news for gold investors.

Trump’s selection of current Fed Governor Jerome Powell follows months of public speculation about the possible candidates. Current Fed Chairman Janet Yellen becomes the first chairman in decades not to be reappointed for a second four-year term.

Financial markets greeted Powell’s appointment happily, as it is believed that he will be more dovish than two of the other finalists, former Fed Governor Kevin Warsh and Stanford University economist John Taylor.

While a dovish Federal Reserve may mean a slower pace of interest rate hikes, in the long term that could be good for gold, Goldco CEO Trevor Gerszt told Newsmax Finance.

“A John Taylor-led Fed would have been seen as more hawkish, more financially responsible, and in the short term might have meant a pullback in gold prices,” said Gerszt, also a Newsmax Finance Insider.

“But in the long term, Powell’s policies will just continue Yellen’s. Powell had voted and supported Yellen during her tenure as the Federal Reserve’s Chair.

Because of Powell’s alignment on all issues with Yellen, both the Fed’s friends and foes view a Powell chairmanship as a continuation of Yellen’s policies. However Powell has his critics who point out that unlike his immediate predecessors, Powell is a lawyer, not a PhD-economist, the first non-economist to head the Fed since the disastrous tenure of G. William Miller from 1978-79. However if confirmed, Powell would be the first Fed Chairman to come from an investment banking background.

That has Wall Street overjoyed, as they hope it will lead to a more understanding regulatory regime in addition to business-friendly monetary policy. “The expectation is that Powell will be more understanding of Wall Street’s needs. Markets hope that translates to more dovish monetary policy, less financial regulation, and a continuation of the stock market boom,” according to Andrew Packer, Newsmax Editor of the Resolute Wealth Report.

Packer, also a Newsmax Finance Insider and who has just written a new book on gold “Trump $5,000 Gold,” warns that the “continuation of a very accommodative Federal Reserve monetary policy along with a huge Trump tax cut and eventual passage of infrastructure spending next year, could easily serve to weaken the U.S. dollar. That could be highly inflationary and may ignite a new bullish market in gold, precious metals and commodities.

(Newsmax wire services contributed to this report).

© 2020 Newsmax Finance. All rights reserved.

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Phil Streible, senior market strategist at RJO Futures, is urging investors to be cautious about investing in gold as the year comes to an end.
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Monday, 06 November 2017 11:29 AM
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