Investment managers and market players in the GCC region are getting bullish on gold following the larger-than-expected US Fed rate cut, advising clients to be ‘overweight’ on the yellow metal in their investment portfolios.
On the stock side, they favour US equities more in anticipation of them clocking the strongest earnings growth, while asking client firms and market participants to aggressively cut their cash positions, as more rate cuts by the US central bank are likely to make this less and less attractive, market experts told Arabian Business.
Gold prices surged to $2.635 per ounce on Tuesday morning trading hours, gaining about $6.5 dollars – or 0.25 per cent – from the previous day’s closing.
Prices of the yellow metal have shot up by more than 2.2 per cent in the last few trading sessions, following the rate cut.
Market analysts said from a technical perspective, gold prices appear to be in a strong uptrend, with the Relative Strength Index (RSI) suggesting buying momentum is gaining traction.
“Our view currently is that the US economy is likely to achieve a soft landing – slower growth, but avoidance of a recession – as the Fed cuts rates.
“[Since] equity markets have already done very well this year and upcoming [US] elections, ongoing geopolitical risk and technical pose the risk of heightened volatility ahead, we currently see global equities and bonds as core holdings and instead overweight on gold,” Manpreet Gill, Chief Investment Officer for Africa, Middle East and Europe at Standard Chartered Bank’s Wealth Solutions, told Arabian Business.
“We are still underweight cash, given Fed rate cuts are likely to make this less and less attractive,” said the investment chief of Standard Chartered Bank’s Wealth Solutions, a leading player in the wealth management segment in the GCC and the wider Middle East region.
Decline in US treasury yields, weaker US dollar to support gold prices
Mohamed Hashad, Chief Market Strategist, Noor Capital, said the unexpected 0.5 percentage point cut last week and the anticipation of further cuts going ahead has led to a decline in US Treasury yields and a weaker US dollar – both supportive factors for gold prices.
“Traders are positioning themselves ahead of the nonfarm payrolls report this month, which could provide further clues about the Fed’s future policy decisions,” he said.
Gold prices retreated from near-record highs in the international market towards mid-September following the release of the key US payroll data for August.
The mixed jobs report, a critical measure of labour market health, reduced the likelihood of a large 50 basis points (bps) rate cut by the Fed, strengthening the dollar and pressuring gold prices.
Market experts said the unexpected 50 bps cut led to a bounce back in gold prices, crossing the earlier record high of $2,531 per ounce to hit $2,635 on Tuesday.
“Gold prices appear to be in a strong uptrend from a technical perspective.
“The Relative Strength Index (RSI) suggests buying momentum gaining further traction going ahead,” Hashad said.
He said the Federal Reserve’s significant rate cut has also spurred optimism about loosening liquidity.
“[This has led to] the US dollar continuing to weaken, benefiting commodity prices. Gold has reached a new high, while crude oil has experienced a notable rebound, alongside gains in silver and copper.
“Cryptocurrencies have also followed this trend, with Bitcoin rising to a three-week high,” Hashad said.
Churn in GCC investors’ portfolio ahead of US election
Investment managers said portfolios of GCC investors are seeing a major churn in the run-up to the US election this November.
“We saw some rotation in markets in July when Trump trades first came to the fore after the first Presidential debate.
“However, renewed sector volatility is possible as elections are a key event risk over the next 3 months and polls show the race remains a closely contested one,” Gill said.
Some of the market experts, however, anticipate only a very short-lived volatility as they take a broader view that US elections have a relatively limited impact on markets.
They also, however, pointed out that more specific and shorter-term trades can still be attractive.
The investment chief of Standard Chartered Bank’s Wealth Solutions also said they also wouldn’t shift their long-term views on the back of the US election alone.
“Almost 100 years of history shows financial markets tend to revert to long-term trends once they move a few months either side of an election,” he said.
Gill also revealed that within equities, they favour US equities, “given this is where earnings growth expectations are strongest”.
“Within bonds, we favour Emerging Market USD bonds as it remains one of the few pockets of value in this asset class,” he said.
As for sector preferences for stock investments ahead of the US election, Gill said they would consider financial and energy sectors under a Trump win scenario, and tech, communication services, financials and healthcare under a Harris win scenario.
“US financial and energy sectors are potential beneficiaries of Trump’s proposed tariff, spending and deregulation proposals.
“Under a Harris win scenario, there is likely to be an environment of continuity, hence markets are likely to quickly move on to focus on unrelated fundamentals,” Gill said, adding that US tech, communication services, financials and healthcare are the four sectors where their Wealth Solutions division are currently Overweight, independent of elections.
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