Gold pull-back likely to be only temporary, says Baker Steel

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Gold’s recent wobble will only be temporary according to specialist mining trust Baker Steel Resources Trust Limited (LON:BRST).

The price of the metal fell to a two-month low this week having hit a high of around US$2060/oz at the height of the coronavirus uncertainty.

A rally by the dollar and US government debt and drops in equity markets has prompted some switching out of gold said the trust.

It argues, however, that the impact on the metal has been disproportionate given the supportive economic and market factors for the gold sector at present.

“Technical selling may have amplified the metal’s price drop, adding to the large moves seen in recent days.”

Gold ETFs also saw their largest inflows for 12 months this week as investors chose to “buy the dip”.

“These factors lead us to suspect that the current sell-off is likely a temporary pull-back for gold which, as we have argued previously, should be expected as the sector progresses towards the next phase of its bull market.”

Negative real interest rates are here to stay, argues baker Steel, with the US Fed having reiterated its commitment to low rates for the foreseeable future and signalled its intention to let inflation run while a divisive Presidential election looming means persistent US dollar strength seems unlikely.

“Overall, we consider that the global policy response to the economic crisis caused by COVID-19 will drive the gold sector in the months ahead, as unprecedented levels of economic stimulus, currency debasement and persistent elevated economic risk support demand for gold.

“We see new highs ahead for the gold price, as do many other institutions, including Bank of America and Goldman Sachs, which notably forecast significantly higher prices.

“As we move into the fourth quarter of 2020 we expect any pull-backs in the gold sector to be temporary and, as always, it is our view that “averaging-in” remains the best strategy for investors seeking to build a position in gold or gold equities during this period.”

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