U.S. Monetary Policy Worrisome For Gold But Other Factors Supportive

New York (Aug 4)  While worries about eventual tightening of U.S. monetary policy might be hurting gold, there are also factors underpinning the yellow metal and silver, says Mitsubishi. Friday’s report on U.S. nonfarm payrolls once again showed a rise of more than 200,000 last month, although the 209,000 increase was below the revised 298,000 from June and the unemployment ticked up to 6.2% from 6.1%. “The anticipation of higher interest rates clearly remains a downside risk to both silver and gold in the short term, but there are two major factors that are supportive of precious metals as safe havens in the medium term: if economic growth continues to reduce the slack in the U.S. economy while interest rates are effectively zero, inflation may tick up, prompting buying of gold as an inflation hedge. Secondly, zero interest rates have fueled the speculative froth in emerging-market equities and other risky assets – prospects of rate rises may lead investors to seek yield in more conventional assets, prompting a flight to the relative safety of silver and gold as seen back in January. Add to this the potential for more ‘black swan’ geopolitical events and the prospects do not look too bad.”

Source: KitcoNews