Pimco manager says gold still too expensive

A Pimco management director, who said sticky inflation will make it challenging for the Federal ReserveFederal Reserve to meaningfully cut rates, said that gold still looks too expensive after recent declines.

In May, precious metal prices fell, with prices falling from just shy of a record early in the month. More losses could be in store, even if it s well-supported over the longer term, according to Greg Sharenow, who manages a portfolio focused on energy and commodities at Pacific Investment Management Co.

Bullion is modestly over-valued compared with inflation-linked government bonds, or TIPs, and those are probably better value in multi-asset portfolios for now, he said. Real bond yields are likely to stay higher for longer, pressuring non-interest bearing gold, he said.

The metal is still more than 20% higher than a low in September, following a rally that fueled largely by investors anticipating an end to the Fed's rate hikes. When central banks will ease policy, and whether developed economies can avoid recessions, there's a mixed picture of how the economy will go about resolving a crisis. The passing of a debt-limit deal in the House of Representatives removes one risk.

The biggest challenge one has right now is to figure out the lagged effects of any credit tightening that is coming from some of the central banks, he said. The uncertainty band is still relatively wide. Mild recessions in developed markets are more than likely but while the Fed may be nearing the end of its tightening cycle, that doesn't preclude another hike, said Pimco's chief executive, Harry Pimco, in a statement. In view of globalization and so-called greenflation, central banks could struggle to lower rates as the world shifts from fossil fuels to renewable energy.

The long-term outlook for gold, which ShareNow calls a 25-year-old asset, looks brighter as central banks look to diversify holdings away from dollar assets. It has already been a tremendous amount of interest from central banks that have helped support bullion at recent levels, he said.

The safety and security of gold right now has a high currency to them, he said, and there are a lot of countries that are questioning their dollar reserves.