(Kitco News) - The gold market continues to struggle to find its footing as it slips further below $3,200 an ounce. However, one market analyst said that gold still has plenty of upside potential as inflationary pressures and a slowing economy continue to erode the U.S. dollar’s purchasing power.
In an interview with Kitco News, George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that although the U.S. government continues to flip-flop on its trade and tariff policies, the resulting economic uncertainty will eventually drive up inflation.
Gold has taken a significant hit this week as global financial market sentiment has improved, following progress in trade talks between the U.S. and Chinese governments. Over the weekend, the U.S. government announced it would lower tariffs on Chinese imports for 90 days as negotiations continue.
Improved market sentiment has reduced investor demand for gold as a safe-haven asset. Spot gold last traded at $3,186.40 an ounce, down nearly 2% on the day and at its lowest level in five weeks. Prices are down 9% from last month’s all-time high of $3,500 an ounce.
Despite the selling pressure, Milling-Stanley said he remains bullish on gold, as the U.S. dollar does not appear to be benefiting from the recent positive trade developments. The U.S. dollar index has managed to push back above 100 points but is experiencing increased volatility. The index last traded at 100.94, roughly flat on the day.
“I'm not looking for the dollar, due to current policies and current economic circumstances, to strengthen any time soon,” he said. “The likelihood of higher inflation, slower growth, and a softening dollar will be good for gold.”
While higher inflation would traditionally support the U.S. dollar by forcing the Federal Reserve to tighten monetary policy, Milling-Stanley said the current environment is now working against the greenback. He pointed out that slowing economic growth is keeping the Fed in a holding pattern. However, there are growing expectations that the central bank will eventually cut rates this summer.
“Right now [Federal Reserve Chair Jerome] Powell is focused on inflation, but who knows what happens when the labor market starts to slow and the unemployment rate moves up,” he said.
Milling-Stanley said he doesn’t know whether the U.S. economy will fall into a recession this year; however, he noted that he has been asked this question frequently in recent months. Despite some renewed investor optimism, he said he doesn’t expect gold’s safe-haven demand to disappear anytime soon.
“More people are buying gold, not because they hope the price is going to go up and they can sell it for a profit tomorrow, but more and more people are buying gold for its protective attributes,” he said. “Gold has a long track record as protection against sustained high inflation. It has a long track record as protection against potential weakness in the equity market. Gold has a track record of offering protection against geopolitical turbulence, and we have no shortage of that.”
