Gold prices have pulled back following news Janet Yellen has been tapped to lead the Federal Reserve after Ben Bernanke, but her nomination should actually be a long-term bullish factor for the precious metal, says Gerry Sparrow, president and founder of Sparrow Capital Management.
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“Yellen comes from an accommodative perspective on inflation and continued bond buying, so she will likely continue the Fed’s inflationary programs,” said Sparrow, a registered investment adviser who manages the Hard and Soft Commodities portfolio on Covestor.
Gold prices could also be influenced by the impending debt-ceiling deadline and government shutdown, the eighteenth since the mid-1970s.
In previous budget showdowns, gold has tended to climb in the short-term, then trade back down when a compromise is eventually reached, Sparrow said.
However, Sparrow stressed he’s not a trader and that Hard and Soft Commodities portfolio is a long-term strategy. Specifically, the portfolio is designed as an inflation hedge to protect capital during times of uncertainty. Sparrow uses ETFs to gain exposure to precious metals such as gold and silver, as well as soft commodities such as agriculture.
Within commodity markets Sparrow focuses on major themes, including supply and demand characteristics, market uncertainty, inflation hedges and technical analysis.
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“The long-term outlook for gold is favorable as central bank monetary policies continue to depreciate currencies,” he said.
In the agricultural sector, fundamental tailwinds include population growth, particularly in India and China where demand for food is a long-term trend. Companies focused on farming equipment, seeds and chemicals are best positioned to benefit, he added.
DISCLAIMER: All opinions included in this material are as of October 10, 2013 and are subject to change. The opinions and views expressed herein are of the portfolio manager and may differ from other managers, or the firm as a whole. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable. Past performance does not guarantee future results.
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