(Kitco News) Gold is suffering because there is an information vacuum surrounding U.S. monetary policy. Investors are filling the void with unexpected worst-case scenarios for the precious metals market, according to one fund manager.
The gold market has suffered from anemic interest through most of the summer. Investors have been expected the Federal Reserve to shift its monetary policy, starting with a plan to reduce its monthly bond purchase. In an interview with Kitco News, Bill Herrmann, founder of Wilshire Phoenix, said that his firm’s adaptive gold-backed exchange-traded fund (NYSE: WGLD) is 100% invested in the gold market.
The fund’s adaptive strategy rebalances its exposure to the gold market every month.
“I think investors need to look through these short-term kneejerk reactions and focus on the bigger picture,” Herrmann said. “Gold is oversold and I think it’s only a matter of time before it bounces back.”
Herrmann’s bullish outlook on gold comes ahead of the Federal Reserve’s latest monetary policy decision. There are growing expectations that the U.S. central bank will release its plan to reduce its monthly bond purchase; however, some economists think the Fed could delay the release until its November meeting.
Herrmann said that it’s not surprising investors are avoiding gold as there is a lack of clarity on U.S. monetary policy.
“We’re in an information vacuum right now. That is never a good thing for the market because people can start to create their own stories. Investors are waiting for clarity, and once they get it, I think that will be bullish for gold,” he said.
Although the Federal Reserve is looking to tighten its ultra-accommodative monetary policies, Herrmann said that looking at the big picture, interest rates can only go so higher. He explained that with U.S. debt growing out of control, the government can’t afford higher interest rates.
“Ultimately, real interest rates are going to remain in negative territory as inflation pressures persist,” he said. “We don’t see inflation getting out of control, but it will continue to rise steadily, and that will impact global markets.”
Although gold prices have struggled to hold gains in the face of potentially tighter monetary policy, Herrmann said that he is also watching support in the marketplace.
He explained that while gold prices are below $1,800 an ounce, investors have managed to defend strong support around $1,750.
“There is some underlying strength in the gold. Investors see these little corrections in the gold market as buying opportunities,” he said. “Gold still remains a core asset in a portfolio and that is not going to change anytime soon.”