Western investors continue to ignore gold even as prices continue to reach record highs. However, they are no longer actively pushing for higher prices, according to one strategist. This means that the current gold rally will go even higher.
“The gold rally is just getting started!”
cryptokoin.comAs you follow from , gold prices broke a record by exceeding $2,350. However, abrdn Director of Investment Strategist Robert Minter says the rally is just getting started. The strategist says it’s only a matter of time before retail investors jump into gold-backed exchange-traded funds, sparking the next big rally.
Minter’s comments come as abrdn celebrates a major milestone with its gold-backed ETF. Last week, assets under management in the abrdn Physical Gold Shares ETF surpassed $3 billion for the first time. Investment demand remains somewhat lukewarm. However, Minter says that gold investors should at least be satisfied that the sales have stopped. Minter states that since April 2022, ETF investors have sold approximately 750 tons of bullion. Thus, he notes that they created a large supply in the market. He further explains that this was met by two years of historic demand from central banks.
Central bank gold demand has not disappeared!
Robert Minter also states that central bank demand has not disappeared. However, he points out that gold supply has dried up as ETF sales have slowed. Gold purchases by central banks have slowed down in recent weeks. However, Minter says the overall trend in official purchases remains high. “If you were a prudent central bank fund manager in some of these countries, you would move away from the dollar to reduce your risk, plain and simple,” the strategist says.
But the real question is: When will Western investors embrace gold again? Minter predicts that Western investors are expecting a real interest rate cut from the Fed. Despite new views from a range of central bankers last week, the Fed remained somewhat coy about the start of the next easing cycle. Some monetary policy committee members have said they will be reluctant to cut interest rates as long as inflation remains high.
When will the Federal Reserve start easing?
The timing of the Fed’s easing cycle remains a moving target. Minter says there’s no doubt interest rates will have to come down. The strategist states that in an environment where credit card debts have reached record levels, insurance premiums are rising everywhere and government debt is out of control, the US economy cannot afford to keep interest rates in the restrictive zone for much longer. In this context, the strategist makes the following statement:
The Fed has made so many mistakes in the last three years that I think they are very cautious about making another mistake. If you were the President, you would have to know the impact that the size of the interest rate increases you would make in a short period of time would have on the economy. This kind of monetary policy usually disrupts something in the economy at a structural level and you have to catch up really quickly. You certainly can’t afford to see unemployment rise much further to reduce housing inflation by a few tenths of a percent.
Strategist: We haven’t seen anything yet!
Even if the Fed keeps interest rates unchanged over the summer, Minter expects rate cuts before the end of the year. Gold prices found support at $2,000 in early February. Since then, gold is up about 19%. It reached a new intraday high of $2,372.50 early Monday. However, Minter says there is still significant value in the gold market even after this rally. In this regard, the strategist shares the following assessment:
Regardless of its timing or magnitude, the next Fed funds move is a disruption, and historically it has led to increases in gold prices of 57%, 235% and 69% in 2000, 2006 and 2018. Even though prices have increased by 18%, we haven’t seen anything yet.
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