Gold price is finding its feet and ready to run higher - Aberdeen Standard Investments
(Kitco News) - The gold market continues to see lackluster demand even as the price holds support above $1,800 an ounce. However, one market strategist said that sentiment could start to shift to the bullish side once again before the end of the month.
In an interview with Kitco News, Robert Minter, director of investment strategy at Aberdeen Standard Investments, said that it will soon be clear that the ongoing COVID-19 pandemic and the growing threat of the Delta Variant will continue to weigh on the U.S. labor market, which is a critical element to the Federal Reserve's plan to reduce its monthly bond purchases.
He added that any delay in the Fed's much-anticipated plan will be positive for gold prices. He said that another component of the labor market is if workers are still unemployed, the U.S. government could be forced to launch a new stimulus package.
"There is this belief that come September, magically, 11 million people are supposed to find 10 million jobs and go back to work," he said. "I just don't see that happening COVID is not nearly over yet. The recovery right now is in retrograde, it's not fatal, but it's enough to keep pressure on the Fed to maintain its current monetary policies."
Minter added that with politicians gearing up for next year's midterm elections, they won't hesitate to pass new stimulus measures to support unemployed workers.
"Because money is so cheap right now, it literally costs the government nothing to print more," he said.
The new stimulus would be on top of the $1.5 trillion the government recently passed on infrastructure spending and the proposed $3.5 trillion budget proposal. While these numbers sound incredible, Minter said this is just a drop in the bucket for what is needed.
But monetary policy and government spending are only two parts to the bullish equation for gold prices. Minter noted that rising inflation remains a critical supporting factor for precious metals. He added that there are growing expectations that bottlenecks in the supply chain could last for years longer than expected as companies rebuild their inventories.
Higher inflation pressures will keep real interest rates in negative territory even if the Federal Reserve raises nominal rates sooner than expected.
"If interest rates rise by 25 basis points, but inflation rises by 30 basis points, then who cares? Real rates are still negative," he said. "Gold remains attractive in that kind of environment."
Minter said that Aberdeen Standard is currently maintaining its forecast for gold prices to trade between $1,800 and $2,300 an ounce within the next 12 months. He noted that gold has tested the bottom end of its range; now, it's time to test the top end.
The investment firm sees silver prices trading between $24 and $30 an ounce within the next 12 months.
Even if investors believe the current economic recovery will continue to support equity markets and push bond yields higher, Minter said that there is still room to have some gold in your portfolio.
"You don't need to have a 50% allocation to gold but having a small allocation in your portfolio allows you to say with your risk-facing assets," he said. "Investors can use gold to take a little bit of risk off the table. There are very few instances where I wouldn't be in favor of having some small exposure to gold."