(Kitco News) - The gold market continues to move from strength to strength and in a world filled with uncertainty, investors should expect this trend to continue, according to one market analyst.
In a recent interview with Kitco News, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that he is not surprised gold prices are notching new record highs on nearly a daily basis.
The comments come as June gold futures last traded at $2,258.30 an ounce, up nearly 1% on the day.
Milling-Stanley pointed out that at the start of the year, his team saw a 30% chance of gold prices pushing to a high of $2,400 an ounce. At the same time, State Street sees a 50% chance of prices trading between $1,950 and $2,200.
“At the start of the year, we saw an 80% chance of gold prices ending the year higher from where it started,” he said. “I don’t know if this rally is sustainable. $2,200 is a big figure that could attract some selling.”
Although Milling-Stanley remains bullish on gold, he said he would not be surprised to see the market consolidate at lower levels in the near term. However, he added that it is clear that the market has established a new floor above $2,000 an ounce.
Although Western investment demand has been fairly lackluster, as gold-backed ETFs have not seen the type of inflows that the futures market has, Milling-Stanley said that the longer this current momentum lasts, the more attractive gold becomes to long-term investors.
He added that he expects it's only a matter of time before investors embrace gold as a safe-haven asset as global economic uncertainty drives market volatility higher. As to how much gold investors should own, in the current environment, Milling-Stanley said as high as 20% of a portfolio would not be inappropriate.
“A portfolio can benefit from a long-term strategic allocation between 2% and 10%. And if you are experiencing or anticipating exceptional volatility in markets, then it makes sense financially to double your allocation to gold,” he said. “Over time, gold can help to enhance the returns of a properly balanced portfolio. And whether gold is going up, down, or sideways, it will also help reduce the volatility of your portfolio.”
Although U.S. economic activity remains relatively robust, Milling-Stanley said that the threat of a recession hasn’t completely disappeared. He added that there is still a lot of uncertainty surrounding inflation and the Federal Reserve’s monetary policy.
He explained that this uncertainty is a major factor behind the market’s elevated volatility.
“People’s expectations are going to continue to change on a dime. They're going to continue to change dramatically, which is positive for gold,” he said. “Gold is definitely an important core piece of any properly balanced investment portfolio.”
Even if the U.S. economy does avoid a recession, Milling-Stanley said inflation is not expected to go away. He added that it’s clear that the Federal Reserve tightening cycle is over, and even if they don’t cut interest rates three times this year, gold should continue to benefit.
Milling-Stanley explained that with the Federal Reserve maintaining interest rates at current levels and inflation rising, real interest rates should start to turn lower, which will weigh on bond markets and the U.S. dollar.
