(Kitco News) - After a six-day selloff, the gold market appears to be finding its footing again as prices push back above $2,600 an ounce.
Since Trump’s election, gold prices have dropped nearly 5%. However, in a recent interview with Kitco News, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that even with the current selloff, the gold market remains in a solid uptrend and is still on track to end the year within his bullish scenario.
Earlier this summer, Milling-Stanley raised his year-end bullish gold price forecast to between $2,500 and $2,700 an ounce. His base-case scenario was for gold to trade between $2,200 and $2,500 an ounce.
“I have been a little shocked by the severity of the selloff in gold, but I don’t think it will be sustainable,” he said. “After seeing gains of 33% this year, I don’t think investors should be too worried about this selloff.”
Gold has struggled as the U.S. dollar has gained new momentum, with traders expecting that President-elect Donald Trump’s America First policies will support the currency. Since the U.S. election, the U.S. dollar index has rallied 3%. However, that momentum has started to reverse as the index drops below 106.5 points, down 0.2%. At the same time, gold prices have pushed solidly back above $2,600 an ounce. December gold futures last traded at $2,616.40 an ounce, up nearly 2% on the day.
Looking ahead, Milling-Stanley said he doesn’t expect Trump’s potential policies to be as supportive of the U.S. dollar as many believe. Although Trump’s proposed tariffs would support domestic production, higher inflation pressures could slow economic activity.
Although the Federal Reserve has embarked on a new easing cycle, Milling-Stanley said he expects that if inflation starts to rise again, Federal Reserve Chair Jerome Powell will not hesitate to raise interest rates, which would slow the economy.
Milling-Stanley noted that gold has nothing to fear from a shift in U.S. monetary policy. He pointed out that at the start of the year, markets were expecting to see six rate cuts, and even as those expectations were pared back, gold saw its best rally since 1979.
At the same time, Milling-Stanley said inflation isn’t the only factor supporting gold prices. He explained that Trump’s proposed tax cuts are not just inflationary but will also add to the government’s already burgeoning debt.
“If we get signs of inflation, I think that gold will respond to that rather than anything that the Fed does to try to counter that inflation,” he said. “Gold is very, very sensitive to inflation and very sensitive to debts and deficits.”
With all this uncertainty and the current easing cycle, Milling-Stanley said he still expects Western investors to continue moving back into gold-backed exchange-traded products.
“I think a lot of people have been waiting for this correction. Gold remains attractive as the Fed continues to lower interest rates and economic uncertainty remains high.”
