Gold's rally just won't last for this forecaster as rates climb

[SINGAPORE] Gold's stellar start to the year simply won't last as the US jacks up interest rates, according to Richard Jerram, chief economist at Bank of Singapore Ltd.

"People will start looking through the volatility and just focus on the idea that rates are going to go up," Mr Jerram said in an interview in Singapore on Wednesday. "It's going to go down, for a long time." Gold has surged in 2016 after three years of losses as a rout in global equities, prospects for a weaker yuan and sinking commodity prices have reinvigorated demand for a haven. Jerram said that until the US stops increasing rates in another three or four years bullion will actually drop, raising the possibility that it may sink below US$800 an ounce.

"We're advising people, you can own a little bit as a hedge if you really feel worried," said Mr Jerram, who works for the private-banking unit of Oversea-Chinese Banking Corp. "But it's probably going to go down for somewhere between a long time and forever." Bullion for immediate delivery traded at US$1,118.60 an ounce at 3:40 pm in Singapore, according to Bloomberg generic pricing. The metal rallied to US$1,123.06 on Tuesday, its highest since Nov 3, and is up 5.4 per cent this year.

The Federal Reserve is expected to leave rates unchanged when policy makers conclude their two-day meeting in Washington on Wednesday. There's now a 25 per cent chance they will increase rates by March, down from 51 per cent at the start of the year.

BLOOMBERG