Trade Wars, Negative Bond, Growing Debt; There Are Plenty Of Reasons To Hold Gold - State Street
(Kitco News) - Gold investors may have been disappointed with the Federal Reserve’s monetary policy decision Wednesday, but it is no reason to abandon the yellow metal, according to one market strategist.
In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisor, said that there is enough uncertainty surging through global financial markets to support gold prices through the rest of the year.
“The gold market got what it expected but not what it hoped for,” he said “Looking past the interest rate cuts, there are plenty of reasons why gold is holding above $1,400.”
He explained that although the U.S. economic activity is relatively positive, threats are building on the horrizon. One factor that will continue to support gold prices is the ongoing trade war between the U.S. and China.
“The trade war is not going away anytime soon and will probably escalate and that just adds more uncertainty into financial markets,” he said. “There are all sorts of confusion in the marketplace and that will continue to support gold.”
Milling-Stanley’s comments came before President Donald Trump announced that on Sept. 1 the U.S. government will impose a 10% tariff on the rest of the $300 billion of imported goods from China. The latest escalation in the trade war is on top of the 25% tariff already imposed on the $250 billion worth of imported goods.
Gold prices have surged higher in reaction to Trump’s statement. December gold futures last traded at $1,443 an ounce up more than 1% on the day.
Milling-Stanley noted that Federal Reserve Chair Jerome Powell highlighted the trade war as one of the reasons for Wednesday’s rate cut — the first one in a decade. Milling-Stanley added that the U.S. central bank won’t hesitate to cut interest rates lower if the trade war starts to significantly impact the U.S. economy.
Along with the trade war, growing government debt and negative yielding bonds in the U.K and Europe make gold an attractive safe-haven asset, Milling-Stanley said.
In the U.S., Congress passed an extensive budget bill of $2.75 trillion in defense and non-defense spending over the next two years.
The bill would also suspend the statutory limit on Treasury Department borrowing to remove the possibility of the government defaulting on its debt through the November 2020 election.
“Gold had been building a full head of steam before June’s breakout and I don’t think a lot of those factors have changed in the last few months,” he said. “There are a lot of uncertainties out there and an allocation to gold is the only sensible thing to do.”
Milling-Stanley said that he is also confidence in gold’s reliance as the price has held key support in what is traditionally a slow time for the precious metal.
“If gold can hold $1,400 at the height of the summer who knows what’s in story in the fall, which is a much more favorable time of year,” he said.