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(Kitco News) - The gold market remains trapped below $1,950 an ounce as the Federal Reserve is expected to maintain its aggressive monetary policies through the summer; however, price action is one factor that investors should be looking at when building a core position in gold, according to one market strategist.
In a recent interview with Kitco News, Kristina Hooper, chief global market strategist at Invesco, said that while gold faces a challenging environment as markets expect the Federal Reserve to raise interest rates by another 25 basis points later this month, it remains an important strategic asset to own.
She added that gold could continue to be well supported in the near term as investors look for opportunities to hedge against growing risks in the marketplace.
"If we look back at 2022, that was a reminder of the importance of being well diversified. It means investors should hold more than just equities and bonds. They should hold alternative assets as well, including gold," she said. "It's important to be thinking strategically as opposed to tactically, and that's what makes the case for gold, even as it faces some headwinds in the near term."
U.S. economic activity has been relatively resilient in the face of the Federal Reserve's most aggressive tightening cycle in more than 40 years; however, Hooper added that excessive savings, driving consumer demand this year, is starting to dry up. She said that economists still don't know the full lagging impact rising rates will have on the economy.
She noted that Invesco expects growth to slow, but the U.S. is on track to avoid a deep and prolonged recession. But she added that there are still risks that conditions can worsen.
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"There is inherent, in any kind of tightening cycle, let alone an aggressive tightening cycle, risk of lagged effects that can do significant damage to the economy. We just don't know how much damage there will ultimately be," she said. "We can make our best guess as to what could happen, but we know there is that alternative risk scenario where we could see a hard landing. That is another argument for gold, as part of a broadly diversified portfolio.
Hooper said the threat of a recession, heightened geopolitical risks and central bank gold demand within the broader de-dollarization trend are just some of the factors that can still push gold prices back to $2,000 an ounce by year-end. She added that even at current prices, gold still has plenty of value.
"There are a number of catalysts that could drive prices up within the next year. So even though the gold seems, fairly overpriced, in the shorter term, that is irrelevant," she said.
