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(Kitco News) – Financial markets, including gold, have breathed a collective sigh of relief after the Federal Reserve raised interest rates by 75 basis points. According to one market strategist, this could be an important turning point for the precious metal.
In an interview with Kitco New, George Milling-Stanley, chief market strategist at State Street Global Advisors, said that gold’s recent drop below $1,700 was an exaggerated move and its push back above $1,750 is a closer representation of its fair value. He added that growing economic uncertainty and ongoing geopolitical turmoil will continue to support prices, especially as the Federal Reserve is closer to the end of its tightening cycle.
“I have been pleased that gold prices were able to hold support around $1,700 an ounce and I expect that the market will be able to build on the move that we are currently seeing,” he said.
Milling-Stanley added that he is not surprised that gold prices have rallied 2% the day after the Federal Reserve’s monetary policy decision. He noted that the US central bank could have been a lot more hawkish; instead, Federal Reserve Chair Jerome Powell struck a solid tone that further aggressive rate hikes will be data-dependent.
Powell also said Wednesday that the central bank would be prepared to slow the pace of rate hikes as the economy reacts to its aggressive monetary policy.
“As of today, the markets have decided that there are another two months before the next meeting. And that is time for a lot of data to be released,” he said. “The consensus seems to be in September, we will only be looking for a 50-basis point increase, and it may get lower in October. Markets are seeing the light at the end of the tunnel,” he said.
Milling-Stanley added markets are now focusing more on the threat of a recession than Fed rate hikes, which could weaken the US dollar and cap bond yields. At the same time, he added that even if the economy slows, it is unlikely that the Federal Reserve will be able to bring inflation entirely under control.
“As people’s fear of recessions resurface and I’m sure it will on multiple occasions over the next two months, then I think that gold will do well as investors seek safe-haven assets,” he said. “I expect that growth will continue to slow. The US economy is going to get a lot worse before it gets better than that is positive for gold.”
Milling-Stanley said he is maintaining his base case scenario for gold prices to trade between $1,800 and $2,000 an ounce this year. He added that there is also still a chance that gold can end the year above $2,000 an ounce.
“Given the growing number of major macroeconomic uncertainties, major geopolitical uncertainties, it’s hard to see why gold would stay where it is through the rest of the year,” he said. “I’m expecting prices to move up, sooner rather than later.”
Along the bullish macro environment, Milling-Stanley said that he is optimistic that physical demand in China should pick up. Although the country continues to feel the effects of COVID-19, Milling-Stanley said that he doesn’t expect the nation will implement strict lockdown measures.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/or damages arising from the use of this publication.