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(Kitco News) - The gold market continues to hold solid support above $1,950 even as the Federal Reserve unleashed its most aggressive tightening cycle in more than 40 years.
According to one market analyst, the precious metal is in a good position to push to record highs as the U.S. central bank moves closer to a terminal rate. In an interview with Kitco News, Steve Land, lead portfolio manager of Franklin Templeton's Franklin Gold and Precious Metals Fund, said that renewed investor demand is the key to gold pushing back to record highs above $2,000 an ounce.
Land added that slowing economic growth will continue to support recession fears in financial markets, which should, in turn, support investment demand for gold.
"I'm very happy with the gold price. It's performed exceptionally well, reflecting a lot of the economic uncertainty in the world," Land said. "I'm not complaining about $1,950."
Land's optimistic comments on gold come as the Federal Reserve starts its two-day monetary policy meeting. It all but guaranteed that the U.S. central bank will raise interest rates by 25 basis points following this meeting. At the same time, there are expectations that this could be the last rate hike in this tightening cycle.
Land said that whether this is the last rate hike or there is more to come, it is clear the Federal Reserve is nearing its end game.
"We are getting to a point where higher interest rates are starting to bite and [the Fed] may not have as much room to be as aggressive as they would like to be," he said.
Although U.S. economic growth has been relatively resilient in the first half of 2023, Land noted that it takes time for the effects of the central bank's monetary policies to be felt in the broader economy. He added that it's not surprising that investment demand in gold has lagged through most of 2023 as the robust economy has supported broader equities.
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"We've got a stock market that's actually been performing quite well. We've got bonds that are providing yields to investors that we haven't seen in decades. So from that standpoint, there hasn't been this need for diversification. Investors aren't saying: "I need protection; I need a safe haven,' because the markets are working," he said. "The real question is: how long does this last?"
Land said that gold's current strength is its lackluster investor interest. He noted that a small shift in investor demand would be enough to push price back to $2,000 an ounce. He added that investors should pay attention to gold-backed exchange-traded products to determine investor interest.
"If gold ETFs turn around from here, there's no question gold prices could go significantly higher," he said. "Maybe there is a little more downside from here, but gold's strength does speak to the fact that we are starting at $1,950, a great price, especially considering how little interest there's been from physical gold ETFs."
