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Gold's 'luster' against equities, inflation, is weak; will it pick up in 2023? - Gary Wagner

Kitco News

(Kitco News) - Gary Wagner, Editor of TheGoldForecast.com, thinks gold has recently lost its "luster" as a hedge against equities and inflation.

Wagner spoke with David Lin, anchor and producer at Kitco News at the Vancouver Resource Investment Conference.

Wagner discussed Federal Reserve Chairman Jerome Powell's intent to raise interest rates. "Basically, the market questions whether or not… the Fed will actually act on what they intend to do."

The Federal Reserve faces a tough choice. If it raises rates, then this would increase government's debt servicing and could cause a recession. This could also affect the price of gold.

"There's a really big difference between [now and] what we've witnessed [in the] middle of 2011, when gold peaked at 1,920 [USD] and then began to come down," said Wagner. "For about three years it traded between 1,820 [USD] and 1,537 [USD], back and forth. And this occurred as quantitative easing went from Q1, Q2, Q3… and when they ended quantitative easing completely, that's when we broke below 1,500 [USD] per ounce… [Today] we look at relative price, 1,800 [USD], it hasn't really gone down that much considering what we saw last time when quantitative easing came to an end."

Besides monetary policy, gold faces fiscal pressures, said Wagner. "The proposals of the bills that are on the table by President Biden are going to be costly. And so that has a dramatic impact on whether gold is going remain under bearish pressures."

Wagner is skeptical that the Biden administration or Federal Reserve can combat inflation.

"[They] are so far behind the curve, trying to play catch-up," opined Wagner. "It's going to be a difficult task at best. And at worst, [it] will be absolutely ineffective… Historically speaking, there has never been a time in which, to combat inflationary pressures, they raised interest rates less than a half of the level of inflation… So to think that we can solve the problem that exists now by having a much more relaxed take on it… seems to be impossible."

He also mentioned that supply shortages are driving today's inflation. The Fed cannot tackle these through monetary policy.

Gold is considered a hedge against inflation and equity volatility. Yet, the precious metal has not performed well against 2022's decline in equities.

Wagner explained, "I think that we have a different scenario playing out. We have a new variable, and that variable is real yields on U.S. treasuries and notes. The market's always forward-thinking, they're anticipating what a rate will be six months down the road. And so, we've seen 30-year bonds, 10-year notes. We've seen them move up aggressively, actually offering… a real yield [of] 2 percent, 2-and-a-half percent… Gold is non-interest-bearing. It doesn't yield anything… And that's taken kind of the luster out of gold as a hedge."

To find out Wagner's price target for gold in 2023 and beyond, watch the above video.  

Follow David Lin on Twitter: @davidlin_TV

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