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Gold remains on track as Federal Reserve lays out path for 50-bps rate hikes - State Street's Milling-Stanley

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(Kitco News) - According to one gold strategist, the precious metal still has nothing to fear from the Federal Reserve even after the central bank raised interest rates by 50-basis points and signaled further aggressive moves at the next two meetings.

In a telephone interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that he expects gold prices to continue to trade in a range between $1,800 and $2,000 an ounce for the rest of the year even as the Federal Reserve continues to fight inflation with aggressively tighter monetary policies.

Although the U.S. central bank has signaled it could raise interest rates by 50 basis points at the next two meetings, Federal Reserve Chair Jerome Powell pushed back on the idea that it could raise interest rates by 75 basis points. The market has had to adjust some of its hawkish expectations, which helped gold prices briefly push above $1,900 an ounce.

"Mr. Powell has provided the market with excellent forward guidance to avoid market shocks and surprises," Milling-Stanley said. "He has delivered on the job of a Fed Chair at this particular meeting."

Although gold hit some fairly strong resistance at $1,900, Milling-Stanley said that the market remains in solid shape. Helping to support gold through the new tightening cycle is the growing volatility in equity markets.


Gold price turns positive as Fed raises interest rates by 50 basis points

"As I have said before, gold has nothing to fear from rising interest rates. Equity markets, however, are a different story. They will have something to fear from higher interest rates," he said.

Along with rising interest rates, Milling-Stanley also noted that growing economic threats in China and Europe and ongoing geopolitical uncertainty would help gold maintain its safe-haven allure.

"There are more threats to the likely course of the stock market right now than there are to the gold market," he said. "Looking at investment demand, we are seeing more strategic interest in gold. Investors are saying: 'I need more diversification in my portfolio, if the economy continues to be threatened.'"

Another big reason gold doesn't have to fear the Federal Reserves' hawkish stance is that real interest rates will remain low through 2022. Markets expect interest rates to rise to 3.00% by the end of the year, which Millin-Stanley said is reasonable given the current economic environment.

However, he added that inflation would keep real interest rates low.

"Real rates are beginning to turn mildly positive, and that will impact people's perceptions," he said. "But I don't think that we are going to see a strong rise in real interest rates that could throw a spammer into the gold market."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.