The relationship between gold and investors is like one between a mother and her prodigal son. A dovish Fed and economic uncertainty have seen the investors cling tightly onto “mother bullion’s” apron strings. But amid talk of a Fed tapering, Bank of Singapore (BOS) currency strategist Sim Moh Siong sees investors lured away from gold by more seductive yields elsewhere.
“US real yields could move higher towards year end amid a more positive macro backdrop, which should weigh on gold. History shows that over time, the price of gold closely tracks real US bond yields,” writes Sim in a June 4 broker’s report. He targets gold prices coming in at US$1800/oz ($2383.36) in a year’s time.
Even if a taper tantrum is avoided, Sim sees markets failing to resist the sweet nothings of Fed taper talk. There is a growing risk of a tone shift from voting members of the Fed’s Open Market Committee (FOMC), as more Fed governors clamour to start discussing the timetable for policy exit. The Fed, Sim warns, could start discussing tapering soon.