Precious metals and related exchange traded funds have suffered on rising Federal Reserve interest rate expectations and a strengthening U.S. dollar, but may have moved past the worst of the sell-off.
“Historically expectations of a rate hike drive support for the U.S. dollar which is generally negative for precious metals,” Maxwell Gold, Director of Investment Strategy at ETF Securities, said in a research note. “Once a rate hike has occurred, however, this trend typically reverses. A similar path may play out this December, with precious metals – in particular gold – finding support from continued negative real interest rates, episodic market volatility and continued political uncertainty leading up to and following the US presidential election.”
Currently, the markets are baking in a Democrat Hillary Clinton victory for the presidential election. However, if Republican Donald Trump pulls off an upset victory, gold could strengthen up to 10% when a new party enters the White House, Gold told ETF Trends in a call.
Any further uncertainty would also help drive safe-haven demand for gold and precious metals.[related_stories]
After the election, we will be focused on the Federal Reserve’s monetary policy, with a likely token hike in December. However, Gold warned of a potential “December déjà vu” where the Fed may pass on further hikes afterwards, which may further support gold prices.
The ongoing low real interest rate environment will continue to support gold and precious metals, Gold added.
Moreover, increased physical bullion demand out of the emerging markets, especially from China and India, will continue to support prices in the fourth quarter. A strong monsoon season, festivals like Diwali and pent up demand from a jewelry strike in the first quarter have helped bolster demand for physical metals. Gold prices have also dipped in October, which may further attract discount buying.
Platinum and palladium may also continue to enjoy industrial demand, notably from European and Chinese consumers. The rising incomes and growing middle class in China, along with more stringent emission standards, and strong auto sales in Europe could generate increased demand for the white metals for autocatalytic converters.
Investors can gain exposure to precious metals through a number of physically backed ETF options, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
For more information on the precious metals market, visit our precious metals category.