(Kitco News) - The gold market has seen elevated volatility in recent weeks amid dynamic shifts in interest rate expectations; however, one market strategist said that the precious metal remains well supported even as the Federal Reserve hesitates to cut interest rates anytime soon.
In an interview with Kitco News, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that gold remains an attractive asset as the world remains rife with uncertainty. While the Federal Reserve’s reluctance to embark on an easing cycle could limit gold’s gains in the near term, Milling-Stanley said he doesn’t see this as a significant headwind.
Milling-Stanley said that although the Fed is not ready to cut rates now, Federal Reserve Chair Jerome Powell made it clear Wednesday that the central bank is not looking to raise interest rates again.
“The pressure, I think, should remain on the U.S. dollar even if we’re only going to get one rate hike this year,” he said. “Ultimately, we are still in line for a period of Fed easing once we get a slowdown in the economy.”
In the current climate, Milling-Stanley and his team at State Street are increasing their base-case price range for gold through the second half of the year. Milling-Stanley said that they now see gold prices trading between $2,200 and $2,500 an ounce.
The firm’s new price range is up significantly from its initial base case range between $1,900 and $2,200 an ounce. At the start of the year, Milling-Stanley also ascribed a 30% chance to gold pushing above $2,400 an ounce.
Milling-Stanley said that his gold price upgrade reflects heightened uncertainty worldwide.
“People are nervous about what’s still going on in Ukraine, people are nervous over what will happen with China over Taiwan, people are nervous about all the elections, and they are nervous about the economy,” he said. “Are consumers prepared for the Federal Reserve’s expected slowdown? Hell no, and that is a scary thought. We are surrounded by uncertainty and what asset does well during uncertain times?”
Although Milling-Stanley is bullish on gold through the rest of the year, he added that he doesn’t rule out prices remaining volatile. However, he pointed out that this is the natural function of the market as investors take profits.
“Given the rally, investors have had very, very big profits to take,” he said.
Milling-Stanley said that what will ultimately propel gold higher is the realization that U.S. monetary policy isn’t supportive of a strong dollar and will be even less supportive as the economy weakens.
“There is always a danger that the Fed will do what it has done so often in the past, which is to adopt the right course and then stick to that course for too long so that it becomes the wrong course,” he said. “People will soon start to realize that the pressure is not on gold right now; the pressure is really on the dollar.”
Neils Christensen
Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @KitcoNewsNOW
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