With the gold market stabilizing, today top Citi analyst Tom Fitzpatrick sent King World News a piece saying that rumors of reflation’s demise are greatly exaggerated.
From top Citi analyst Tom Fitzpatrick: “The recent narrative has been one of a world teetering on the edge as political and geopolitical risk is overwhelming markets; Chinese tightening/slowdown is having a negative feedback loop into commodities and commodity exporters (mainly local markets); and US economic data has disappointed resulting in diminished growth expectations…
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However, this is not a narrative we believe has “legs” as we remain in an environment of strong global growth and relatively loose monetary policy. Political and geopolitical concerns have risen, but markets ultimately will be driven by the economic backdrop rather than by headlines. US labor and housing markets remain robust and should continue to drive growth. European growth is picking up. China remains stable in our view despite recent volatility.
These dynamics suggest to us we are likely to see higher yields in Europe and the US.
King World News note: While concerns have been expressed about the possibility of rising rates weakening the gold market, KWN strongly believes that history shows rising rates and rising gold prices go hand in hand, particularly when the Fed and other central banks are behind the curve. We believe that rising inflation will also create increased demand for gold and therefore higher prices.
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