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(Kitco News) - Resilient strength in the U.S. economy is creating some optimism at the Federal Reserve that it can maintain its aggressive monetary policy to fight inflation without creating a recession. However, according to one market analyst, that optimism still isn't shared among retail investors, and persistent fear and uncertainty will keep gold prices well-supported through the summer and into year-end.
In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that despite better-than-expected economic data, the one comment he continues to hear from investors and fund managers across the country is that they are concerned about an impending recession.
"People are still very concerned about the health of the economy, and that uncertainty is good for gold," he said. "I don't think that uncertainty is going anywhere anytime soon."
Even if the U.S. can avoid a recession, Milling-Stanley said the Federal Reserve's monetary policy will still slow growth. He added that while not a perfect environment for gold, low growth and stubborn inflation is still positive for the precious metal.
"We've had seven recessions of significant size in the 50 years that I've been looking at gold, and on average, the annual price appreciation for gold during those recessions was 20 percent," he said. "If we get a recession, then gold is going to do well; if we don't get a recession, but we get a period of slow growth, high inflation, then gold is going to do just fine."
Milling-Stanley said that in either scenario, investors should view gold as an essential portfolio diversifier. He added that gold should outperform equity markets in both a recession or a slower growth environment.
"Whatever the outcome is going to be, it's going to be a lot worse for equities," he said. "Equities are still living on borrowed time. The equity market is still behaving as if we had free money, but we don't. Money now costs somewhere between five-and-a-quarter and five-and-a-half percent."
With uncertainty expected to keep a bid in the gold market, there is one segment of the investment crowd that bears watching.
In an investor survey published at the start of the month, State Street discovered a surprising market trend: gold investors are getting younger. According to the study, Millennials have the highest percentage of gold in their investment portfolio at around 17%. Both Generation X and Baby Boomers hold about 10% of their portfolio in gold.
"For most of my career, my feeling has always been that it was my generation and older people investing in gold, and I was a little concerned because we're dying off," he said. "So these results took me by surprise. I'm still trying to figure out why millennials jumped over Gen X."
Milling-Stanley said that it makes sense why Baby Boomers see value in gold as they have seen double-digit inflation as well as extreme market volatility in the 1980s. Speculating on the new trend, Milling-Stanley noted some similarities between the older and younger generations.
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While inflation is not in double digits, consumer prices rose at their fastest rate in 40 years last year. Economic uncertainty and geopolitical risks are also at their highest levels in a generation.
Milling-Stanley added that millennials are open to new ideas and not afraid of taking risks.
"Millennials were very enthusiastic about cryptos," he said. "And having lost $2 trillion out of a market cap of $3 trillion in the space of a couple of weeks last year, millennials are probably now looking for ways to protect themselves, and are saying, ‘Maybe the new shiny object we should be looking at is an old shiny object.'"
Another factor making it easier for Millennials to invest in gold has been the evolution of exchange-traded products. Before the SPDR Gold Shares (NYSE: GLD) was launched in 2004, the only way to invest in gold was in the futures market or in physical bullion.
"It was never easy to invest in gold. Millennials were the first generation that has come of age in a period when there was no friction to investing in gold," he said. "You can see that in the comments in the survey, younger investors have really embraced the ETF market."
In 2018, the market then embraced micro-gold products with the launch of SPDR Gold MiniShares, which trades at a fraction of the cost of GLD. In its report, State Street noted that GLDM has become the third largest gold-backed ETF in the marketplace.
"I am encouraged by the fact that both are growing together, so it's not GLDM cannibalizing GLD, both are growing together, and for different reasons," said Milling-Stanley. "There are still plenty of people who like to take advantage of the liquidity that GLD has. And there are plenty of people who like to be able to buy a gold ETF at $20 a share or wherever it's at."
