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Three Rate Hikes In 2018 Are No Cause For Concern For Gold Investors - State Street

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Editor's Note:View Kitco News' full 2018 outlook coverage

(Kitco News) - Gold investors have nothing to fear from the Federal Reserve even if the central bank achieves its goal of raising interest rates three times in 2018, according to one market analyst.

In an interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that like in 2017, gold prices could rally another 8% or 9% in 2018, which would put prices above $1,350 an ounce. He added that he sees several factors helping to support gold next year, with the central bank playing a small role.

“Gold prices are up 9% so far this year. So the market has withstood three rate hikes in 2017 and there is no reason why it can’t do it again in 2018,” he said. “I think it is reasonable to think that we can expect to see these type of gains again.”

The main factor to drive gold next year, Milling-Stanley said, will be continued strategic diversification into the precious metal as investors deal with the potential of an exhausted stock market, plus ongoing geopolitical uncertainty.

“The strategic arguments for holding gold are more appreciated now than they have ever been before,” he said. “There are macro-economic reasons why people are buying gold as a safe haven and there are geopolitical reasons why people are buying it as a safe haven.”

Milling-Stanley added that he still sees gold as a popular store of value for consumers in emerging markets who are coping with currency devaluation concerns. He explained that for this reason, he sees strong physical demand in countries like India and China.

Looking at the U.S. dollar, Milling-Stanley said that he is expecting to the currency to continue to lose ground in 2018. He noted that even with three rate hikes in 2017, the U.S. dollar is down almost 9% this year.

“I don’t think the geopolitical and macro-economic conditions that have pushed the U.S. dollar lower this year are going to change next year,” he said.

As for the Federal Reserve, Milling-Stanley said that he thinks potential rate hikes next year will add volatility in a continued uptrend. He noted that gold has created a familiar pattern of selling off ahead of the telegraphed rate decision only to rally following the meeting.

“I think logically we can expect to see some weakness in the gold price ahead of whatever rate hikes we get next year,” he said. “But they aren’t a cause for a concern. I see them more as a buying opportunity for anyone who wants a short-term tactical move.”

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.

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