Gold’s rally is only just beginning and prices will really take off once investors fully factor in the Federal Reserve’s more dovish stance, according to the London-based manager of the $330mn Merian Gold & Silver Fund, which invests both in the physical metal as well as miners.
While bullion has been released from a seven-year headlock by the central bank’s signal of a pause in tightening, some investors remain on the sidelines, according to Ned Naylor-Leyland. Once prices scale $1,360 an ounce and close above that on a sustained basis, traders will be more convinced, he said.
Gold headed into 2019 with considerable bullish momentum, with prices rallying to a 10-month high in February as investors bet the Fed would deliver fewer, if any, interest rate hikes this year compared with 2018. While it’s since dropped back after minutes from the latest meeting weren’t quite as dovish as the signals seemingly delivered by policy makers in January, Chairman Jerome Powell last week repeated the recent mantra of pledging patience.
“We’ve seen a trend change, we’ve seen a change in policy, we’ve seen a change in language, but I don’t think many investors have probably realised the prime beneficiary of dovish forward guidance is monetary metals,” Naylor-Leyland said in an interview in Singapore.
“We need all technical lights on the starting grid to be green simultaneously before people will start to allocate.” 
Bullion for immediate delivery traded at $1,291.28 yesterday, up 0.7% in 2019, according to Bloomberg generic pricing. It rose to a high of $1,346.80 in mid-February before heading lower to cap the first monthly drop since September.
Naylor-Leyland didn’t give a specific forecast, but emphasised bullion’s gains during its previous structural bull markets.
Silver is also one to watch, according to Naylor-Leyland, as the cheaper metal tends to move more relative to gold, typically posting bigger gains in a rising market. In a secular bull market for gold, “silver is the best way to drive a return profile in this asset class,” said Naylor-Leyland.
There’s been differing views on the outlook for gold.
Goldman Sachs Group Inc has a year-end target of $1,425 as the economic cycle ages and low and volatile returns in risk assets support demand. Conversely, Morgan Stanley last month closed its recommendation to bet on gains, noting that prices have struggled to break $1,350 on a sustained basis for the better part of five years.