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First The Fed, Now Government Debt To Drive Gold Prices Higher - Bloomberg Intelligence

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(Kitco News) - A “patient” Federal Reserve has unleashed new momentum within the gold market and one analyst says focus on the government debt will be another catalyst to drive gold prices higher.

In a report published Thursday, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that he expects to see higher gold prices as rising government debt looks unstoppable.

“Gold is set to resume the almost two-decade-long bull market on the back of the increasing U.S. budget deficit and peaking dollar,” he said.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence

McGlone’s comments came after gold prices pushed to a fresh eight-month high as investors continued to digest the latest Federal Reserve monetary policy decision and comments from Jerome Powell. Although the central bank remains optimistic on economic growth the committee said Wednesday that it would halt its monetary policy tightening.

April gold futures last traded at $1,325.80 an ounce, up 0.78% on the day.

In a press conference following the Federal Reserve decision, Powell said that they are expecting to see slower growth in 2019 as compared to last year. He added that growing cross-currents in the global economy have reduced the case for future rate hikes.

While not commenting on U.S. fiscal policy, Powell also did comment on the path of U.S. government debt.

“In the long-term, the Federal budget is not on a sustainable path and needs to be addressed,” he said.

Powell warned that in the long-term, the government will be forced to spend money on just servicing its growing debt instead of putting that money where it is needed most.

Earlier this week, the Congressional Budget Office said that U.S. is expected to increase its debt by 12 trillion between 2020 and 2029. The increase in debt is the results of more spending and slower economic growth, the CBO said in its report.

McGlone added that investors will continue to turn to gold as the mix of lower growth and rising deficits add volatility in U.S. equity markets.

“[Investors] appear more focused on gold's diversification attributes in an environment of elevated stock and bond prices and surging sovereign-debt levels,” he said. “The historically low level of gold volatility indicates a trend-ready market that is similar -- but with the opposite directional bias -- as U.S. stock volatility last year. The ratio of the per-ounce price of gold vs. the S&P 500 index appears in early days of recovery. Gold is recovering from levels vs. the S&P 500 last seen in 2007, just prior to the global financial crisis…”

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