Expect To See Gold's Best Days After The June Fed Meeting - State Street
(Kitco News)- While gold could struggle around the $1,300 an ounce levelfor the next two weeks, the market’s best days this year are stll ahead, saidone market analyst.
In an interview with Kitco News, George Milling-Stanley,head of gold investments at State Street Global Advisors, said that investorshave to wait until after the Federal Reserve’s monetary policy decision on June13 before seeing gold regaining its lostground and pushing back to $1,350 an ounce.
He added that gold’s recent drop to a five-month low, asprices pushed through critical support at $1,300 an ounce, was in part becauseof the impending interest rate decision. Gold’s selloff ahead of an interestrate decision has been a well-documented pattern since December 2015, he said. Gold settled the week at $1,299.30 an ounce, down 0.74% from the previous week.
The CME FedWatch Tool shows that markets have priced inalmost a 94% chance of a rate hike in June.
“If you look at the gold market cumulatively since theFederal Reserve started normalizing interest rates in December 2015, the goldprice is up almost 30%,” he said. “I think that is more important directionallythan what we’ve seen happen in the last week or two,” he said.
After the June rate hike, the market is not expectinganother move until October or November. In that time, Milling-Stanley said thathe expects gold to regain its bounce and push back up to its established rangebetween $1,350 and $1,400.
“I would expect gold to rebound quiet well as soon as theFed announcement is out of the way,” he said. “This June move has been so welltelegraphed that I don’t think it will take long for the gold market toadjust.”
Milling-Stanley, said that ultimately, interest rate arerising, but the Federal Reserve is in no hurry to increase its pace ofnormalization. The gold market will continue to benefit in a low real interestrate environment.
“The Fed has said that 2% inflation is not a ceiling, it atarget and that will be good for gold,” he said.
Gold And The U.S.Dollar Can Rally Together
Milling-Stanley said that once the market has digested theFederal Reserve’s next monetary policy decision, he expects geopoliticaluncertainty to support gold. Not only do global investors have to deal withgrowing chaos in U.S. politics, but also mounting concerns surrounding Europe’seconomy and political stability.
Milling-Stanley said that growing economic weakness in theEuropean economy could support further strength in the U.S. dollar; however, headded that this isn’t necessarily a major headwind for gold.
“From 2008 to 2012 gold and the U.S. dollar rose in tandembecause of safe-haven buying,” he said. “It is starting to look a little eerilylike that period again right now. Confusion and disarray are dominatinggeopolitics.”
Ultimately, Milling-Stanley said that although gold hasfallen sharply from last April’s highs, the market has not seen its best daysof the year.
“The atmosphere of uncertainty is encouraging inflows intoGLD and other gold products and that will continue,” he said. “More and morepeople are becoming more conscious of the strategic benefits of holding alittle bit of gold in their portfolios.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views 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 accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.