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(Kitco News) Gold has broad appeal as investors value gold’s safety and security, but despite losses in May, says Pimco managing director Greg Sheanow The price is still overvalued, he said.
Shearnau told Bloomberg that gold is a 25-year duration asset. The long-term outlook for precious metals also remains bullish as central banks continue to diversify from US dollar assets and increase allocations to gold.
Shearnau said there had been an “enormous amount of interest” from central banks and that record levels of purchases had led to higher gold prices.
“The security of gold is very valuable to them now,” he said, adding that “many countries are questioning their dollar reserves.”
However, the outlook is more bearish in the short term as the Fed’s monetary policy action is the biggest unknown.
“The biggest challenge at the moment is figuring out the delayed impact of some central bank tightening of credit,” Shernau said. “The range of uncertainty is still quite wide.”
With inflation still well above the Fed’s 2% target, the central bank won’t be able to cut rates easily, which will weigh on precious metals, Sheanow said.
And after falling for the first time in three months in May, gold could fall further. Shearnau said gold was “slightly overvalued” compared to inflation-linked government bonds.
Gold is still up more than 9% year-to-date despite May’s decline, and investors are again expecting the Fed to pause at its June 13-14 meeting.
At the time of writing, August Comex futures were trading at $1,999.90, up 0.90% from today.
Pimco expects a prolonged period of high real bond yields to put downward pressure on interest-free gold. Sheanau also hasn’t ruled out another rate hike before the tightening cycle ends.
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