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Banking uncertainty spurs gold gains, will trade around $2,000 through 2023 - State Street's George Milling-Stanley

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(Kitco News) - Markets might be a little too premature, betting that the Federal Reserve will be cutting interest rates before the end of the year, according to George Milling-Stanley, chief gold strategist at State Street Global Advisors.

In an interview with Kitco News, Milling-Stanley said that after listening to Federal Reserve Chair Jerome Powell's press conference Wednesday, it will probably take a deep sharp recession to force the central bank from its present course.

"I'm guessing that we will probably go into a shallow recession at some point this year, but I don't think the recession will be deep enough to force Powell to change cause and cut rates this year," he said. "When you look at the labor market, there is a good deal of resilience in the underlying economy."

Milling-Stanley's monetary policy outlook comes after the Federal Reserve raised interest rates by 25 basis points Wednesday and signaled that it would maintain its aggressive interest rates through the rest of the year. The central bank's stance comes as the U.S. economy faces a growing banking crisis after two regional banks collapsed in the last two weeks along with Swiss-based Credit Suisse, one of Europe's largest banks.

During his press conference, Powell downplayed the growing tensions, saying that the banking system is sound and resilient. At the same time, he added that the central bank remains focused on bringing inflation back down to its long-term 2% target.

Despite the Fed's hawkish stance on inflation, Milling-Stanley said that he still sees gold prices trading in and out of $2,000 an ounce through 2023. Milling-Stanley's bullish outlook comes as gold prices push back to within striking distance of $2,000 an ounce. April gold futures last traded at $1,995.50 an ounce, up more than 2% on the day.

Milling-Stanley said that he expects a weaker U.S. dollar through 2023 to provide further support for gold.

While the Federal Reserve could raise interest rates another 25 basis points, it won't provide the same type of momentum to the U.S. dollar that the 75 basis point moves did last year, he said.

"U.S. dollar strength was the principal headwind for gold last year and these 25 basis point hikes are not going to have the same effect," he said. "Gold has nothing to fear from further rate hikes and has everything to enjoy from eventual rate cuts."

Although Milling-Stanley is maintaining his team's current forecast for gold to trade in a range between $1,600 an ounce and $1,900 an ounce, he said that the growing banking crisis will be a new factor that should continue to support gold prices at current levels.

Consumers cash in on unwanted gold as its price soars amid a spreading bank crisis

"This banking crisis has basically up the ante on uncertainty and that is reflected in the volatility around market expectations and that will continue to support gold prices," he said. "I don't think we have seen an end to this banking crisis; right now, we are just waiting for the next domino to drop."

Milling-Stanley said that market volatility and uncertainty will continue to drive investors to gold-backed exchange-traded products. Last week the world's biggest gold-backed ETF, SPDR Gold Shares (NYSE: GLD), saw its first inflows in 10 weeks.

Since March 10, more than 26 tonnes of gold have flowed into GLD. Milling-Stanley said that expectations of further gains above $2,000 are supporting new investor demand in the gold space.

"The people who are buying now are buying for the long term rather than taking out tactical positions. This will provide long-term support for gold prices," he said.

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