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Gold continues to protect your wealth long-term as recession fears continue to grow - SSGA's Milling-Stanley

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(Kitco News) - The Federal Reserve is not done raising interest rates as the inflation threat remains persistently high. Although the central bank's aggressive monetary policy action could keep a lid on gold through the rest of the year, it still plays an essential role as part of a diversified portfolio, according to one market strategist.

In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said despite gold's disappointing price action through most of the year, it continues to outperform other major assets.

Although the S&P 500 has bounced off last month's two years lows, the broad equity market index is down 21% on the year. Meanwhile, gold prices holding new support above $1,675 an ounce is down roughly 9% year-to-date.

Although interest rates will continue to increase, Milling-Stanley said renewed fear of an economic slowdown could provide some bullish momentum for gold. Investors saw a glimpse of gold's potential on Friday as prices rallied sharply, up 3% as a critical recession gauge hit its highest level in 40 years.

Last week, the yield on 2-year notes rose more than 50 basis points above the 10-year. This is the largest inverted yield gap since the 1980s, the last time the Federal Reserve aggressively raised interest rates. Economists have noted that an inverted yield curve has preceded every recession since 1955.

"I don't think we need to see a full recession but a further slowdown in the economy for investors to see value in gold as a safe haven," he said. "For now, I hope that gold investors continue to appreciate the benefits of holding a long-term, safe-haven, strategic asset. I'm expecting that investors will see the rewards of their patience sometime next year."

Milling-Stanley noted that one of the only assets gold has underperformed against is the U.S. dollar. The greenback continues to trade near a 20-year high, supported by the Federal Reserve's commitment to cool down inflation by aggressively raising interest rates.

Gold prices up 2% as a key recession gauge hits a 40-year high

However, Milling-Stanley said there are signs that momentum in the U.S. dollar has peaked and will benefit less from the Federal Reserve's aggressive stance.

"I expect the Fed to continue to raise rates. But I don't think it will continue to result in a stronger dollar," he said.

Along with weakening momentum in the U.S. dollar, Milling-Stanley said that solid physical demand could also help attract new investors to the marketplace. He noted that the gold market continues to highlight healthy physical demand. Specifically, jewelry consumption saw significant growth between July and September, according to the latest data from the World Gold Council.

Last week the WGC said in its third-quarter gold demand trend, global consumers bought 523 tonnes of gold jewelry in the third quarter, above the five-year average of 500 tonnes.

"Jewelry demand is back to pre-COVID levels even as the market continues to face significant headwinds," said Milling-Stanley. "This just shows how strong gold demand is. At some point, this demand will be reflected in the broader investment 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.