Jerome Powell’s latest speech showed that the Fed is clear about the future of economic pain. After that, the gold price started to see sharp decreases. However, according to one gold strategist, now is not the time to liquidate your key gold positions.
The three forces that are limiting for the price of gold
State Street Global Advisors chief gold strategist George Milling-Stanley says three components of the US economy remain resilient even as the Federal Reserve maintains its aggressive monetary policy stance. Therefore, he sees it as possible for gold prices to continue the struggle.
cryptocoin.comAs you can follow, the US dollar is trading at the highest levels of the last two decades. According to the analyst, solid gains in the dollar, relatively healthy consumer demand and relative strength in stock markets are the three forces that the gold market is currently facing and that are limiting prices. Based on this, Milling-Stanley makes the following assessment:
Currently, the gold market is not responsible. Until we see these conditions change, gold’s expectations will be somewhat limited.
“Powell will continue to raise interest rates until the stock market drops further”
Equity markets have been on a solid downward trend for most of the year, with the S&P falling 21% in bear market territory. Despite this, Milling-Stanley says sales have been moderate compared to the rally seen in the past 13 years. The analyst makes the following statement:
Equity markets have been rallying and falling on cheap money since 2008 and free money since 2018. But if Powell wants to get inflation back to 2%, they still have a long way to go. Powell will continue to raise interest rates until the stock market drops further. It takes a few months for investors to start feeling the real pain of high interest rates.
“I would definitely not sell my gold assets in this environment”
For most of 2022, investment demand has been sluggish. However, Milling-Stanley says the impending economic slowdown from rising interest rates is why investors are holding onto key gold assets. The analyst explains his views as follows:
Inflation is still alarmingly high. Also, Powell made it clear that he needed to do some damage to the economy to keep inflation down. We face many macroeconomic and geopolitical uncertainties. I certainly wouldn’t sell my safe-haven assets in this environment. At these prices, I’d like to add to my fundamental position, which is something I think we’ve seen.
Gold price may struggle to rise towards the end of the year
Milling-Stanley adds that the economic slowdown and the possible threat of recession are one of the reasons why gold has been able to hold the critical long-term support around $1,675. It is possible that gold prices will struggle to rise towards the end of the year. In this context, Milling-Stanley does not expect gold prices to fall much further. In this regard, the analyst makes the following assessment:
The gold sales we’re seeing are coming from the weak hands of speculators who think gold will rise to $2,000. We shook most of these weak hands. We were also left with investors holding key strategic allocations. These are not going anywhere. The world is still a very uncertain place. That’s when you want to own some gold.
“That’s when the pain will come!”
Milling-Stanley’s comments on gold came after the Federal Reserve raised interest rates by 75 basis points on Wednesday. Alongside the super interest rate hike, the Fed signaled that it expects rates to peak at 4.6% in 2023. But Milling-Stanley says it doesn’t pay much attention to recent economic forecasts. Because he doesn’t think the Federal Reserve has reached peak falconry. Therefore, he states that interest rates will continue to rise until inflation is brought under control. Finally, it highlights the following:
No one knows where interest rates are going. Powell is right about looking like a hawk. He also continues to tell the market that he will fight inflation and that the 2% target is unconditional. At some point the market will believe it and that’s when the pain will come.
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