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Ron Insana: 5 Reasons to Buy Gold as an 'Attractive Trade'

Ron Insana: 5 Reasons to Buy Gold as an 'Attractive Trade'

By    |   Friday, 15 April 2016 08:28 AM


Ron Insana, a CNBC and MSNBC contributor, says the current global environment of negative interest rates makes gold “an attractive trade in the near term.”

But he does caution in a blog for CNBC.com that while “I love gold for a trade, but I still hate it as a long-term investment.”

While he went on to explain that he doesn't subscribe to any of the gold bug's theories of why gold is the only true currency, he admits that a unique series of circumstances have made the precious metal "a buy" right now.

"I am no fan of gold. I don't believe that gold is the only true form of money in the world any more than I believe paper, loadstones, salt or electronic entries into a ledger, are the only legitimate forms of money in local economies," he wrote.

He explained why gold is a good buy right now:
  • “Negative interest rates reduce the cost of carrying gold and are, at least theoretically, inflationary. But it's the cost of carry that is most compelling as a reason to hold gold,” Insana, the author of four books on Wall Street, wrote on CNBC.com. High interest rates and strong currencies are the typical constraints on owning gold, which offers no yield and tends to decline in value when paper currencies are appreciating, he explained.
  • “Aside from the Japanese yen, there are few currencies surging in value and there are very few countries sporting interest rates high enough to offer attractive yields that appear enticing to investors. It's an environment that may continue to favor gold, both for domestic and international investors, at least for the time being,” he wrote.
  • “There are also some positive technical signs that suggest that gold can extend its recent gains. The recent upward move in gold has been confirmed by rallies in other precious metals like silver and platinum and by rallies in economically-sensitive metals like copper,” he wrote. “From a purely chart-based perspective, gold has no meaningful upside resistance until about $1,350 per ounce, leaving about $100 of upside from current levels.”
  • “Add to that the increasing likelihood that the Federal Reserve, in my opinion, is unlikely to raise interest rates more than one more time this year — if that much,” he wrote.
  • “With estimates of U.S. growth continuing to be downgraded, the Fed has little reason to raise rates in a global climate that remains quite weak, recent stock market action notwithstanding. Other market-based indicators, like a sagging dollar and depressed interest rates, suggest an economic environment that doesn't warrant further action from the Fed.”
Gold steadied on Friday after three days of declines, but was heading for its first weekly drop in three as strength in the dollar and global equities curbed appetite for the safe-haven metal, Reuters reported.

Bullion climbed to a three-week high on Tuesday but gave up those gains as world stocks rose to their highest levels since late December on Thursday, boosted by robust Chinese economic data and a surge in oil prices earlier this week.

Spot gold edged up 0.3 percent to $1,230.30 an ounce early Friday, following a drop of 1.3 percent in the previous session. It is down nearly 1 percent for the week.

Gold's inability to climb to 2016 highs near $1,280 earlier this week shows the metal's rally could be fading, he said.

"The market is pricing in only one U.S. rate hike this year, so there will be more price adjustments if there are more."

Gold prices have steadied after posting their biggest quarterly rise in nearly 30 years in the three months to March, driven by a retreat on expectations that the U.S. Federal Reserve will push ahead with several rate hikes this year.

To be sure, other respected financial voices have also called for savvy investors to own gold now before the price surges past current levels.

RBC Capital Markets says demand from China and India, physical gold ETFs and central bank purchases can push the precious metal to at least $1,300, Barron's reported.

RBC lifted its 2016 average gold price estimate by 9% from $1,150 per ounce to $1,250 per ounce, its 2017 forecast 8% from $1,200 to $1,300 and its long term forecast 4% from $1,250 per ounce to $1,300 per ounce, Barron’s reported.

“A more dovish posture from the Fed, declining real rates and improving fundamental demand for physical gold, have led to our more positive outlook for gold,” RBC explained in Barron’s.

(Newsmax wire services contributed to this report).

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Ron Insana, a CNBC and MSNBC contributor, says the current global environment of negative interest rates makes gold "an attractive trade in the near term."
ron insana, gold, invest, metals
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2016-28-15
Friday, 15 April 2016 08:28 AM
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