Volatility in the gold market continues to heat up as market expectations surrounding the Federal Reserve’s monetary policies change. However, one market analyst, looking at the bigger picture, says the precious metal will remain an attractive asset in 2023 as uncertainty dominates financial markets.
“We’re watching a few sparks that might take the gold somewhere”
Marketgauge Director of Trade Education and Research Michele (Mish) Schneider says many investors and economists try to use legacy models to describe current financial market conditions. However, all they did was ‘try to fit a square peg into a round hole,’ she adds.
Although it has been 40 years since consumers saw inflation so high, Schneider notes that inflation has become a global issue that sets the current environment apart from the 1970s and 1980s. He also notes that it has become much larger than the Federal Reserve and monetary policies can handle. According to him, the decline in globalization, the reopening of China, ongoing geopolitical conflicts and sovereign debt issues are just a few sparks that will limit what the Federal Reserve can do with the tools it has. In this context, Schneider makes the following statement:
The classic Fed formula raises interest rates and cracks the back of inflation that will no longer work. The risk is that the Fed loses control. We’re watching for inflation and gold for a few sparks that could take a lot of people off guard.
Forecast of $5,000 gold in the next few years
Looking at gold prices, Schneider predicts the precious metal has been pushed to $2,000 this year, potentially reaching $5,000 over the next few years. Because he says the world will see a prolonged period of stagflation, low growth and high inflation. Schneider notes that gold is an attractive alternative asset and portfolio diversifier. Because, according to him, there is no clear path for the global economy. In this regard, he makes the following statement:
Whether it’s inflation, stagflation, or even recession, ultimately chaos is bubbling under the surface everywhere. I see no reason why we can’t see $2,000 in gold this year.
“This environment continues the bullish trend for gold”
Out of all the chaos, rising consumer prices remain a major focus. The Federal Reserve took a hard line in its attempt to reduce inflation to 2%, and Chairman Jerome Powell reaffirmed his stance that the central bank is determined to ‘do the job’. Schneider’s perspective on gold comes as the market saw a sharp sell-off following its best start to the year in a decade. cryptocoin.comGold prices fell below $1,900 as there were rising expectations that a hot US labor market would force the Fed to maintain its aggressive stance.
Last week, the Federal Reserve raised interest rates by an expected 25 basis points. Thus, the Fed increased the Fed Funds rate cumulatively by 450 basis points during this tightening cycle. But Schneider says the Fed is limited in what it can do, as many retirement plans are heavily invested in bonds and government debt is so high. In the longer term, Schneider notes, the US central bank likely has room to increase the Fed Funds rate to 5%.
At the same time, global demand for raw goods, specialty food and energy is expected to remain high throughout the year. This will put some pressure on local markets. Schneider adds that this environment continues the bullish trend for gold.
“Gold is a really solid asset”
Although gold has seen a significant drop from its highest level in the last nine months, Schneider thinks the correction could attract new investors to the market. He notes that despite gold’s move more than 20% from its two-year low in November, investors are still significantly under-invested in the precious metal.
While current prices offer a good entry point, Schneider says investors can buy the exit at $2,000. He states that a breakout of this level will likely lead to a significant push to $3,000. In this context, Schneider makes the following statement:
I think you should always have a fundamental position underneath. Also, you should actively trade around it. Gold is indeed a solid asset and is valued globally when nothing else.
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