Gold seen fighting back in battle with dollar for haven role

SINGAPORE – Don’t write off gold in the battle of the havens.

Bullion has lost out in a paradigm shift where the metal’s no longer viewed as the traditional refuge when investors are in a risk-off mood, but that won’t last, according to Rick Rule, CEO of Sprott US Holdings.

Investors are favoring US Treasuries, and that’s seen the dollar get stronger, Rule said in an interview from Vancouver on August 15. But the greenback’s strength is relative, not absolute, and the overwhelming faith that the global saver has placed in the US currency is “probably partly misplaced,” he said.

“It used to be that investors looked much more broadly at a basket of currencies when valuing gold,” said Rule, 65, who’s been involved in the market for four decades. “It seems now that the dollar really has obtained hegemony, and the consequence of that is that the fight really does seem to be between the dollar and gold, and gold seems to be losing. I don’t think that that continues, but I can’t tell you when that changes.”

Bullion’s slumped to the lowest since January 2017 and is set for a fifth month of losses as investors flee to the dollar amid trade tensions, emerging market turmoil and a Turkish financial crisis. A hawkish Federal Reserve and buoyant US equities have also boosted the greenback, now near a 14-month high.

When investors start to focus less on the strength of the US relative to other countries, and more on the standalone strength of the US, and whether they want to be a creditor to an economy with a balance sheet “that’s as out of whack as the US, when investors begin to focus on that, they will begin to diversify their risk-off trade to include, among other things, gold,” said Rule.

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