Managing Director at Crossborder Capital Calls Gold Best Safe Asset

A wealth management firm says short-term dips in gold prices are a buying opportunity as gold is bound to go higher over the longer term.

According to one wealth management firm in a recent Kitco article, short-term dips in gold prices represent a buying opportunity as the metal is bound to go higher over the longer term.

Talking to Kitco, Michael Howell, managing director at Crossborder Capital, said that the prices of safe assets are wrong, especially Treasuries. Although his firm expects bond yields to rise to 3.5% by year's end, higher Treasuries could uncharacteristically support gold prices because of the mechanism driving yields up.

He notes the optimistic tone of Fed Chair Jerome Powell in his recent speech suggested further tightening of the monetary policy and potentially four rate hikes this year. While this is generally seen as negative for gold, Howell says the metal will instead benefit from exaggerated bond valuations.

Howell explained that, with the supply of Treasuries increasingly outstripping demand, their gains have to be inflated to attract investors. This has brought on overpriced bonds, a situation that will worsen should the Fed roll in another year of successive rate hikes.

"The appetite for government debt is dropping off pretty fast, so you have to have higher yields to make it more attractive," said Howell regarding the worrying fundamental picture of Treasuries. "We see a repricing of safe assets and gold remains the best, cheapest asset."

The article also reports on the dollar, which, despite its prolonged plunge, one that recently saw the currency test multi-year lows, Howell believes that the greenback remains overvalued. Because of this, Howell's firm sees further losses in the dollar as a certainty. This prediction is especially bullish for gold, as the metal has a strong inverse correlation with the reserve currency and soars in times of a weaker dollar.

Howell believes the source of the dollar's weakness comes from a loss of influence in the global market. Examples of this include the Chinese yuan, which is already competing with the U.S. dollar for a prominent spot as a transaction currency in Asia. The growth of the euro as a funding currency acts as yet another threat to the dollar's status with foreign investors reports the article.

With expectations of a reversal in bond yields and more bearishness in the dollar, Crossborder Capital says that the entire financial background is positive for gold. The firm has been advising investors to stock up on the metal during weaker periods because it will go higher in 18 months.

"Strategically, we think we are at a tipping point. It's just a question of how quickly things shift," said Howell.