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5% inflation through 2022 can propel gold price back above $2,000 - State Street's George Milling-Stanley

Kitco News

The gold market still has a path back to $2,000 an ounce even as the Federal Reserve looks to tighten its monetary policy this year, according to one market strategist.

In Kitco News's inaugural gold market podcast, George Milling-Stanley, chief market strategist at State Streat Global Advisors, said that although the Federal Reserve is looking at raising interest rates with the potential for three or four rate hikes this year, high inflation pressure means that real yields will remain in negative territory.

Milling-Stanley joined Kitco News editor Neils Christensen and Phillip Streible, chief market strategist at Blue Line Futures, for a discussion on what is driving the gold market as prices remain near a two-month high around $1,840 an ounce.

"If we do get four rate hikes in 2022, interest rates are going to be a 1%. That's nothing to be terrified about. Paul Volcker took interest rates up into the teens in percentage terms back in the 1980s, when we had much higher inflation," he said.

Milling-Stanley added that looking as far back as the 1970s, when the economy has seen sustained levels of inflation above 5%, gold prices have seen nominal returns of around 15% and real returns of about 10%.

In December, the Consumer Price Index showed an annual rise of 7%. Economists and analysts note that rising commodity prices and wages could keep inflation above 5% for most of 2022.

"If that happens, then the price [of gold] is going to be on the verge of $2000 very, very quickly," said Milling-Stanley. "There's a very serious possibility we could see that taken out this year."

Not only is gold an important hedge against rising consumer prices, but Milling-Stanley pointed out that it can also provide some protection as equity markets start to weaken and volatility picks up. The S&P 500 fell into correction territory Monday as it sees its worst start to the year in recent history.

Kitco News’ latest podcast is so new that it doesn’t have a name yet. We would love to hear your suggestions. You can send them directly to nchristensen@kitco.com or to newsfeedback@kitco.com

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