Rising dollar demand and steady upward trend in Treasury yields are taking their toll on precious metals. In fact, according to the latest reports, gold has already fallen below $ 1,700 an ounce.
Such a massive decrease disappointed many investors. But one market analyst said gold is only continuing its role as an important portfolio diversifier.
"Although gold has been a tough investment for the past two quarters, fundamental stories about it still persist," Steve Dunn of Aberdeen Standard Investments said. He also added that the crisis seen in the metal may last a little longer since Treasury yields continue to rise.
But even though gold prices decreased to a very low level this first quarter, gold may hit $ 1,900-2,000 at the end of the year. Dunn also believes the yellow metal will reach new all-time highs by early 2022.
The main block that the market needs to overcome is the current surge in bond yields.
But according to Dunn, the Federal Reserve will not act on it unless the figure reaches 2%. At the moment, the yield is 1.77%.
"It is in the Fed's interest to keep rates low and the dollar weaker," he said. "The yield on bonds may continue to rise, but at some point the Fed will respond to it. At what level this will happen, I do not know, but it will happen. This is what everyone is waiting for. "
And while investors await a sustained economic recovery, there is still a lot of uncertainty due to another COVID-19 wave.
In fact, Dunn said the US economy can not support higher interest rates, which is very beneficial for the gold market. To add to that, rising inflation will keep real interest rates at historically low levels for the next three years.
"The Fed wants to see higher inflation, but not higher interest rates. This is the ideal for the gold market, " Dunn said.
