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(Kitco News) – The gold market has seen solid momentum over the past two months as prices have managed to surpass $ 1,900 per ounce; However, a market analyst said the precious metal still has a tough road ahead.
Rob Haworth, senior investment strategist at US Bank Wealth Management, said he sees a competitive landscape for gold as the global economic recovery continues to gain momentum.
He added that the stock markets remain attractive in an environment of high growth and low interest rates.
“I think for most investors the cyclical recovery is still in play,” he said. “In a cyclical recovery, businesses will continue to benefit from easy access to silver more than gold.”
Although volatility has increased, the Dow Jones Industrial Average continues to hold near record highs seen two weeks ago.
Haworth’s comments come after the US Department of Commerce said in its second estimate that the US economy grew 6.4% in the first quarter. Although the data fell short of expectations, the U.S. economy is growing at its fastest pace since 1984.
“The growth numbers this year are going to be strong. And that will likely put gold under pressure again in the month to come,” he said.
Haworth said in the current environment he expects gold prices to stay within the range they’ve been stuck in since the start of the year. Over the past few weeks, the gold market has risen sharply as prices appear to be returning to positive territory for the year. June gold futures last traded at $ 1,894.80 an ounce, down 0.34% on the day.
The surge in investor interest in gold was sparked by declining negative real interest rates into negative territory as inflationary pressures began to mount. Although inflation is picking up, Haworth said it is still not clear whether it will be transient or permanent.
“There are elements of inflation that are going to be persistent and a bit problematic,” he said. “But a lot will depend on wage growth and pricing power.”
Although pricing pressures are increasing, Haworth said companies still have pricing power. Because of the government stimulus checks, consumers can still buy goods.
Two weeks ago, the US consumer price index rose 4.2% on the year, the highest level since 2008. However, Haworth said inflation must be much higher and be sustainable for gold prices to exceed $ 1,900 per ounce.
“A lot of those gains will wear off as we move into the second half of the year,” he said. “To see these types of hyperinflationary scenarios, government spending has to rise and keep rising; the government has to keep pushing deficit spending.”
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.