Gold price is a cheap hedge as Fed can't control supply-side inflation pressures - abrdn
(Kitco News) - The Federal Reserve is on the cusp of shifting its monetarypolicies, but it won't be enough to stop the growing inflation pressures, andit is only a matter of time before investors return to gold to protect theirwealth, according to one market strategist.
As the Federal Reserve starts its two-day monetary policymeeting, expectations are growing that the central bank will reduce its monthlybond purchases. At the same time, markets are pricing in a rate hike as earlyas June. However, Robert Minter, director of investment strategy at abrdn(formerly Aberdeen Standard Investments), said, in a recent telephone interviewwith Kitco News that the new hawkish tones in the Federal Reserve won't be ableto stop inflation from rising.
"Tighter monetary policies won't solve the backlog inthe Ports; it won't bring new microchips online," he said. "All theyare going to do is create a new hurdle to grow cap-ex when it is actuallyneeded. Federal Reserve policies can't fix supply-side issues."
Minter added that the ultimate risk is that rising inflationleads to stagflation as global consumption drops.
"The ultimate sweet spot for gold is stagflationbecause you have higher inflation and a lower U.S. dollar," he said."Right now, investors aren't quite convinced that stagflation is thescenario that plays out going forward but could quickly change. You certainlycannot take stagflation out of the realm of possibilities."
Looking at the gold market, Minter said that he expects it'sonly a matter of time before the current price attract investors looking forprotection and value.
"If you look at where real yields are right now, itlooks like gold prices should be closer to $1,900 than $1,800 an ounce. Goldright now looks cheap to us," he said.
"Until the government finds a way to get rid of its $28trillion in debt and the $8 trillion on the Fed's balance sheet, we are notsellers of gold," he added.
Not only is the Federal Reserve unable to resolve inflationdriven by the ongoing global supply crunch, but Minter said that growing demandfor raw materials is going to keep inflation elevated for a prolonged period.
Minter added that the global push for more renewable cleanenergy will continue to drive demand for raw materials like copper andaluminum.
"The government has thrown a lot of money into theeconomy and yet it has not solved a single problem," he said. "It'sgoing to take a lot more money to upgrade the infrastructure and build a greeneconomy. You can't spend all that money and not have higher inflation."
Along with gold, Minter is also bullish on silver as themetal will benefit from the green energy revolution. He added that silver willquickly become an essential industrial metal like copper and aluminum.
By Neils ChristensenFor Kitco News
Follow neils_C
nchristensen@kitco.comwww.kitco.com