Gold Will Rally When Investors Stop Focusing On Short-Term Momentum - State Street
(Kitco News) - Investors are focused on short-term momentum in the marketplace that will see a steady rise in interest rates but are ignoring growing risks to financial stability, according to one gold market analyst.
Gold prices have fallen to a one-month low as investors continue to digest Wednesday’s Federal Reserve monetary policy announcement, which is providing some momentum to the U.S. dollar. December gold futures last traded at $1,188.20 an ounce, down nearly 1% on the day.
In a telephone interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that he is not surprised by the reaction from investors. He added that it is part of the pattern that gold has established in the previous interest rate decision.
“The market got exactly what they expected,” he said. “Once it has absorbed the message that real interest rates will remain low, I expect that we will start to see gold recover,” he said. “Today’s move is more of kneejerk response to short-term factors.”
The U.S. dollar continues to be the most significant headwind for gold. In his press conference after raising interest rates by 25-basis points, Federal Reserve Chairman Jerome Powell said that there is still potential for the U.S. dollar to rise as the U.S. economy outperforms other nations.
Milling-Stanley agreed that the U.S. dollar could continue to rally, but he added that current levels are unstainable in the long-term.
While the U.S. central bank remains optimistic that the U.S. economy will continue to grow, Milling-Stanley said that they are downplaying increasing threats in the marketplace, particularly the threat of rising inflation as the U.S. and China embark on what could be a prolonged trade war.
“Trade wars or tariff wars, whatever you want to call them, are extremely serious and we should not take the threat of higher inflation lightly,” he said.
Along with growing inflation pressures, Milling-Stanley said that higher interest rates are also unsustainable as government and corporate debt continue to grow. He added that at some point investors will start to pay attention to the looming potential of a recession.
“Right now it is very difficult for markets to look beyond the next few weeks and that is a very risky thing to be doing,” he said.
Looking at the gold market, Milling-Stanley said that at current prices, the precious metal offers long-term value for investors looking to establish defensive positions.
“I think gold is still in a good place right now and a repricing of risk, which I expect to see soon, will eventually push prices higher,” he said.