Gold to Rebound When Fed Pivots, FS Investments' Gayeski Says




  • In Business
  • 2022-08-17 02:43:41Z
  • By Bloomberg

(Bloomberg) -- Gold stands to rebound when the Federal Reserve pivots to easier monetary policy after about a year, although prices may drop before that as it goes on shrinking its balance sheet, according to FS Investments.

Most Read from Bloomberg

  • Saudi Billionaire Made $500 Million Russia Bet at War Onset

  • 'Next Generation' Moderna Coronavirus Booster Jab Approved for Use in Adults

  • America's $7 Trillion Retirement Crisis Is Only Getting Worse

  • These Six Cities Are Emerging as New Expat Hot Spots

  • Wells Fargo Plans Major Retreat From Mortgage Business It Long Dominated

The FS Chiron Capital Allocation Fund's bullion exposure may rise from 4% once the Fed begins to ease aggressively, said Troy Gayeski, who joined the Philadelphia-based asset manager as chief market strategist in October. Before that "it's rational to assume another mild leg down," he said in an interview.

Gold has dropped about 14% from a near all-time high in March as gains driven by the initial shock of the outbreak of war in Ukraine were undone by the dollar's ascent to a record and the Fed's move to raise rates to quell inflation. At the same time, the US central bank has been reducing the balance sheet that ballooned as it went all-out to combat the economic fallout from the pandemic.

"Despite a meteoric run up in the dollar, gold is still trading around $1,800," said Gayeski, who worked for more than a decade at Anthony Scaramucci's SkyBridge Capital. "It's not far below its recent peak, despite Herculean tightening by the Fed, so I think that really bodes well for the next cycle."

FS Investments, which manages about $35 billion, provides access to alternative sources of income and growth.

The Fed delivered two outsized hikes in June and July totaling 150 basis points -- the steepest since the price-fighting era of Paul Volcker in the 1980s -- sparking concerns of a recession. Chair Jerome Powell said last month the plan to pare the bank's balance sheet was "picking up steam." Minutes from the Fed's meeting last month are due Wednesday, while the next decision on rates comes in September, and follows data that showed a cooling of US inflation.

A Fed pivot would probably be "modest and mild," said Gayeski. Initially, he expects the Fed to stop hiking and shrinking its balance sheet, then likely start easing in 12 to 18 months.

Spot gold last traded at $1,776.45 an ounce, compared with the year's intraday high of $2,070.44 in March. Year-to-date, the traditional haven -- which doesn't pay interest and tends to lose out when rates rise -- has dropped about 3%.

"The fact that it's hung in as well as it has, relative to the pace of tightening, really tells us that if there is another leg down, it will be mainly driven by Fed balance sheet reduction, just like other assets," he said. "The resilience this year has been impressive."

Most Read from Bloomberg Businessweek

  • Whole Foods' Battle Against Black Lives Matter Masks Has Much Higher Stakes

  • Andreessen Horowitz Thinks It's Time for Adam Neumann to Build

  • Chinese Shun Debt and Pile Up Savings, Threatening Global Growth Engine

  • Being Thrown Off Social Media Was Supposed to End Alex Jones's Career. It Made Him Even Richer

  • London Lures Top Facebook Executives

©2022 Bloomberg L.P.

COMMENTS

More Related News

Berlusconi
Berlusconi's MFE Teams Up With Xavier Niel for M6 Stake

(Bloomberg) -- Most Read from BloombergBank of England Says Paper Banknotes Only Good for One More WeekRisk Assets Crushed With Few Signs Drama Is Over...

What are the odds of a U.S. recession in 2023?
What are the odds of a U.S. recession in 2023?

DoubleLine Capital CEO Jeff Gundlach told CNBC the Federal Reserve waited too long to raise rates and is now being too aggressive.

Philippines
Philippines' Marcos Eyes China Compromise on South China Sea

(Bloomberg) -- The Philippines is interested in renewing talks with China on joint oil and gas exploration in the South China Sea to expand and diversify its...

Europe
Europe's First Cold Snap Is Early Test for Continent in Crisis

(Bloomberg) -- An Arctic chill that's blowing across western Europe through next week will be the first test of how willing people are to delay switching on ...

Barclays Sued by Investors Over Multibillion Securities Blunder
Barclays Sued by Investors Over Multibillion Securities Blunder

(Bloomberg) -- Barclays Plc was sued by shareholders who claim they suffered significant losses after the British lender disclosed that paperwork errors led ...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business