Make Kitco Your Homepage

Gold is 'undeservedly' cheap relative to equities as inflation sticks around - Felder Report

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - Expectations that the Federal Reserve will continue to aggressively raise interest rates at the end of the month have sent the gold market plunging lower, with prices testing long-term support at $1,730 an ounce.

However, one market analyst is warning that the Fed’s fight against inflation could prove futile and be good for gold prices.

In a report published Tuesday, Jesse Felder, creator of the Felder Report, said that markets anticipate that inflation pressures will quickly ease through the rest of the year. However, he added that historically inflation pressure could take longer than expected to cool.

He added that in this environment, gold continues to shine brighter than equity markets.

"If inflation proves more durable than markets currently discount, the recent volatility may be merely prelude to a more significant repricing across a number of asset classes," he said in his latest report.

"In fact, the level of CPI today already suggests that gold, relative to equities, maybe just about as undeservedly cheap as it was a half-century ago, the last time inflation really became a problem. And if inflation remains elevated, gold prices could have a terrific amount of upside ahead, especially relative to stock prices," he added.

The comments come as gold prices have dropped 4% in the last two days. August gold futures last traded at $1,738.70 an ounce.

According to some analysts, the gold market is struggling as markets continue to price in aggressive interest rate hikes from the Federal Reserve.

The minutes of the U.S. central bank’s June monetary policy meeting didn’t reveal any new surprises or shift market expectations.

U.S. Mint gold bullion sales drop 76% in June year-over-year; silver bullion demand down 69%

However, the Federal Reserve did signal that it is prepared to do what it takes to get inflation back down to 2% even as it sees downside risks to the economy.

"Many participants judged that a significant risk now facing the Committee was that elevated inflation could become entrenched if the public began to question the resolve of the Committee to adjust the stance of policy as warranted. On this matter, participants stressed that appropriate firming of monetary policy, together with clear and effective communications, would be essential in restoring price stability," the minutes said. 

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.