'I was Right': Fed Not Bad For Gold - Milling-Stanley
(Kitco News) - Gold prices could have room to move higher in the next few months, as markets adjust to the idea that the Federal Reserve will maintain a “gradual” pace of interest rate hikes this year, according to one gold analyst.
Gold is seeing a solid bounce as investors deemed Fed Chair Janet Yellen’s comments around a “quite low” neutral Fed Fund rate as dovish, despite the fact that the U.S. central bank raised interest rates by 25 basis-points and maintained its guidance for a total of three rate hikes for 2017. April gold futures last traded at $1,227.60 an ounce, up 2.24% on the day.
George Milling-Stanley, head of gold investments at State Street Global Advisors, said in an interview with Kitco News that the reaction in the gold market was exactly what he was expecting to see following the central bank’s monetary policy decision. He added that even after gold’s $30 rally, it should have enough momentum to move higher in the near term.
“The Federal Reserve has once again shown that it is not in any hurry to raise interest rates,” he said. “I think what we are seeing is the market breathe a sigh of relief.”
Milling-Stanley, added he sees growing potential that the Fed will remain behind the inflation curve. In the central bank’s updated projections, released Wednesday, the Fed sees inflation topping out at 1.9% this year. However, Milling-Stanley pointed out that the core Personal Consumption Expenditures Index (PCE) -- the Fed’s preferred inflation measure -- is starting the year at 1.7%. He added that it wouldn’t take much to drive consumer prices higher later in the year.
“If we see more interest rate hikes later this year it is because we have the inflation to support them. Ultimately real rates will remain low to negative and that is good for gold.”
While Milling-Stanley sees further momentum for gold in the near-term, he warned that the market could weaken in May and November, ahead of the June and December monetary policy meetings, when the central bank is expected to raise interest rates again.
For gold investors, the key will be to see if gold can find higher support in the lead up to June and December, a pattern that has formed since the December 2015 rate hike, said Milling-Stanley.
“Although gold sold off in anticipation of the rate hike it managed to make a higher low from December, which was a higher low from the previous year,” he said. “That is exactly what I want to see because higher lows eventually lead to higher highs.”
Milling-Stanley said that he is maintaining his forecast that gold will retest last year’s resistance levels between $1,350 and $1,400 an ounce.