Although most investors and analysts are expecting gold prices to fall lower as the US economy recovers, the dollar strengthens, and yields rise, there is a UK-based analyst who thinks otherwise. In fact, he expects gold to bounce back in 2017.
Tom Kendall, head of the precious metals strategy team for ICBC Standard Bank, believes 2017 will be a better year for gold, as one very important factor has been overlooked and according to him, this factor will play a very important role in making gold actually bounce back.
According to a report released last Friday, the US Treasury is close to 14 trillion of US Treasury bills, notes, and bonds outstanding. The net interest payments on that outstanding debt, amount to $250 billion this year and are expected to reach $712 billion by 2026, and that is according to a Congressional Budget Office report, CBO, released last August.
In addition, since that August report was released, yields from 5 to 7 year Treasuries have increased by around 80 basic points. If we apply an 80 bps increase to CBO’s net interest forecast, by 2026 the Treasury will have to pay an extra $185 billion annually.
Tom Kendal expects yields to rise further, with the US dollar to stay firm, while gold will remain largely unloved by investors. However, that will be over by the end of the first quarter. Discussions about lifting the debt ceiling beyond 20 trillion will then begin. All this along with low growth and the rising interest costs could well result in a more bullish environment for gold.