It’s time to buy ? Gold price down 4% as investors panic – State Street Global Advisors – .

It’s time to buy ? Gold price down 4% as investors panic – State Street Global Advisors – .

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(Kitco News) – The Federal Reserve created a wave of panic in the precious metals markets after its economic projections on Wednesday showed the potential for two rate hikes in 2023. However, a market strategist said investors were reacting excessively to estimates.

George Milling-Stanley, chief gold strategist at State Street Global Advisors, said investors have nothing to fear from the Federal Reserve and should not pay too much attention to two-year projections.

Federal Reserve Chairman Jerome Powell also warned markets and investors that the forecasts should be taken with important tweezers during his press conference.

“I’m looking at the gold market right now and think this might turn out to be a good time to buy,” Milling-Stanley said. “I see a lot of panic sales and I don’t think it can last any longer. Basically the markets have seen higher inflation and higher interest rates, but they have completely ignored the fact that the hikes are at least two years away. Much can happen in two years. “

Milling-Stanley added that once this wave of panic selling is over, gold will still be in a good position to climb back above $ 1,900 an ounce and hit record highs above $ 2,000 l ounce by the end of the year.

The comments come as gold prices have lost ground since the Federal Reserve’s monetary policy meeting on Wednesday. August gold futures traded for the last time at $ 1,780.40 an ounce, down more than 4% on the day.

Milling-Stanley said a large part of the Fed’s projections depend on the movement of inflation. He explained that the Federal Reserve is not convinced that higher inflation will be permanent. Milling-Stanley added that if inflation falls back to between 2% and 3%, the central bank will not be in a rush to raise interest rates.

“I think the only thing that will prove to be transitory will be this correction in the price of gold,” he said.

Milling-Stanley said he was also not convinced the recent rise in inflation would be sustainable. He added that the economy is recovering from an unprecedented event. There are no models that can accurately predict what will come next.

“I think the inflation data we’ve seen is outliers as demand starts to come back. People are rushing around and spending money. They are doing what they have not been able to do in the past 18 months, ”he said. “I think it’s going to fade pretty quickly. “

Although the economy continues to recover from the devastating effects of the COVID-19 pandemic, Milling-Stanley said he saw no signs of the economy overheating.

However, Milling-Stanley added that if inflation turns out to be more rigid than expected and the Federal Reserve is forced to raise interest rates, gold could still prove to be an attractive investment asset. . He added that the important factor that investors should pay attention to is real interest rates. If the Federal Reserve is forced to raise interest rates, that means inflation will stay at least around 5%.

“Even if inflation continues to rise, the Fed’s projections only indicate an increase of 50 basis points. Real interest rates will remain historically negative, ”he said.

“Look back over the past 50 years, when inflation was above 5% a year, the average return on gold was above 16%,” he added.

Milling-Stanley said that even if the Federal Reserve begins a new cycle of rate hikes in two years, gold can still do well.

“The last time the Fed was in rate tightening mode was between December 2015 and December 2018,” he said. “So gold should have gone down. But it went from $ 1,050 in December 2015 to $ 1,270 in December 2018. Gold has therefore risen by 21% in those three years, even though the rates have been raised nine times. “

Milling-Stanley said he also doesn’t see the Fed raising interest rates as the U.S. government continues to push its ambitious spending programs. President Joe Biden is pushing a $ 6 trillion spending program to rebuild the country’s infrastructure, improve health care and reduce social inequalities.

“We still have a Democratic steroid program, and it’s going to get expensive,” he said. “The deficit will continue to increase, and that means interest rates must stay low. The US dollar is going to weaken, and it’s a good environment for gold. ”

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.


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