Update On Gold

BCA research strategists expect to maintain an underweight precious metals position within the commodity complex. The above chart shows that the key drivers of gold since 2008 – real interest rates, the dollar and investor risk aversion, proxied by the U.S. equity risk premium – have stabilized. Our view is that these drivers will remain trendless in 2014H2, although an equity correction could cause an intermediate-term shift. However, ETF volumes already have adjusted downward, minimizing any downside for gold (and silver).

What could make us wrong and begin a gold bull market? Ironically, a growth scare rather than an inflation scare is the most likely candidate. It would put pressure on central banks to boost liquidity “at any cost”, just like in 2008-2011. But we view that probability as unlikely.

Bottom Line: Gold will ebb and flow with the dollar against a flat trend.

july 4, 2014 bca research