Regency Associates says its faith in precious metals has been vindicated and it has reiterated its view that gold has resumed its secular bull market in a research note to institutional clients.

The news comes after bearish sentiment towards gold reached saturation point in July when the yellow metal traded as low as $1084. The protracted sell off was fueled by broad-based expectations of the Federal Reserve raising the Fed Funds rate for the first time in nearly a decade.

Since then, worsening US economic data, a slowdown in emerging markets in general and China in particular as well as falling commodity prices has seen gold set 3 month highs at the $1170 level and bets on a rate hike in 2015 recede significantly.

“The likelihood of the Fed holding off raising rates in 2015 has put a bid under gold prices but it doesn’t tell the whole story,” said Matthias Thon, who heads up commodities research at Regency Associates. “In our view there’s a definite sense that, if the Fed doesn’t raise this year, what improvements will occur in 2016 to make the economy more able to withstand higher interest rates. Will employment growth suddenly rebound, will consumer sentiment and spending just miraculously reverse trend and take off? We don’t think so and, in our view once the year is over, the rate hike ship will have sailed,” he added.

Technically, the gold price could see a retest of the $1200 level but Regency Associates does not rule out a Fed rate hike completely and cautions that the Fed may wish to salvage its credibility with investors and instigate a surprise 25 basis point increase.

“Of course, if they do that, they very much run the risk of looking foolish if they have to take it back when further signs of a slowdown in the US economy manifest themselves later,” concluded Thon.

About Regency Associates
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