Make Kitco Your Homepage

Gold investment potential remains healthy despite Fed's hawkish stance - State Street's Milling-Stanley

Kitco News

Editor note Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here!

(Kitco News) - Although the gold market is suffering from a lack of momentum, the precious metal's investment potential remains healthy, with plenty of potential to grow, according to one market strategist.

In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that the key to growing investment demand could be further education on the benefits of holding gold as part of a diversified portfolio.

He added that despite the lack of momentum, gold's ability to hold solid support above $1,900 is a strong signal that the market is poised for a new uptrend when momentum picks up.

Milling-Stanley's optimistic comments on gold come as State Street releases an update to its gold investor survey published in June. The updated analysis looked at the role financial advisors can play in developing the gold market.

The survey showed that 20% of respondents said they held some gold. In further analysis, the report said that roughly one-third of investors didn't invest in gold because they didn't know enough about how to invest in the precious metal.

The survey also showed how important an advisor's role is when it comes to bringing investors into the gold market. According to the analysis, 91% of respondents who own gold ETFs indicated they were informed by their financial advisor about the different ways to invest in gold.

"The main message from the analysts is that the future of gold investment seems to be safe. That is very, very good news," said Milling-Stanley. "There is a job for the industry at large to do in terms of educating investors and potential investors."

Milling-Stanley said he expects investment demand in gold to pick up as investors realize the value it creates for a portfolio. He noted that despite gold's lackluster performance so far this year, the market has built a solid base more than $200 above last year's lows.

Gold has struggled to attract investor attention as the Federal Reserve has aggressively raised interest rates to 5.25%. Wednesday, the Federal Reserve left interest rates unchanged; however, Central Bank Chair Jerome Powell signaled that interest rates could remain in restrictive territory longer than anticipated.

Gold shining against Swiss franc and British pound as both central banks leave rates unchanged

Although interest rates are expected to remain higher or longer, Milling-Stanley said it is not a significant threat to the gold rally, because Wednesday's decision is providing little new momentum for the U.S. dollar.

Milling-Stanley added that gold can still outperform against the U.S. dollar if equity markets start to weaken as the Federal Reserve's stance takes its toll on economic activity.

"At the start of the year, I said that equity markets have more to fear from the Fed than gold and I still believe that," he said. "Yes, the economy has been very resilient so far this year, but Powell said on Wednesday that they still need below trend growth to get inflation down to the 2% target. Investors should believe Powell when he says that because he means it."

Milling-Stanley said that despite the Federal Reserve's aggressive actions, core inflation, which strips out volatile food and energy prices, has only fallen 1% from its peak.

"I don't expect we will see a recession, but investors should prepare themselves for a period of slower growth and gold can provide some diversification in this environment," he 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.