Gold prices can push through $1,800 as the Fed is in no hurry to raise interest rates
(Kitco News) - The gold market is once again in striking distance of $1,800. Newmomentum could propel it higher as markets could readjust their expectationsregarding potential interest rate hikes from the Federal Reserve.
George Milling-Stanley, chief gold strategist at State StreetGlobal Advisors, said that since June, investors and markets have been tooaggressive when it comes to price in potential interest rate hikes.
"Federal Reserve Chair Jerome Powell made it very clearWednesday that there is absolutely no link between reducing the balance sheetand potential interest rate hikes," he said.
Wednesday, the Federal Reserve, as expected, started to reduceits monthly bond purchases and the central bank expects the tapering processwill be finished by mid-2022. However, following the monetary policy decision,Powell emphasized that the committee is not looking at rate hikes anytime soon.
"The policy is well-positioned to address the range ofplausible outcomes. It will be premature to raise rates today. We want to seethe labor market heal more," Powell said at a conference that followed theFed's interest rate announcement," Powell said during his press conference.
Although Powell has said that he is in no hurry to raise interestrates, markets continue to price in a rate hike by June of next year. However,Milling-Stanley said that he expects those projections to shift through the newyear, which should continue to support gold prices.
"There's certainly nothing that the Fed said that wouldprevent gold from going back above 1800 again," he said. "The marketwill now have to readjust its expectations after what Powell said. I'm lookingforward to seeing what the market decides to do."
Adding to shifting interest expectations, Milling-Stanley saidthat he expects gold to attract more investor interest as equity marketscontinue to make record-high after record-high.
"Equity markets have been in a massive risk on mood foressentially the whole of 2021. The market has gotten way ahead of the realeconomy," he said. "Equity prices are not reflecting the fact thatthere are for-hire signs everywhere you look."
Milling-Stanley said that he is not expecting to see a majorcorrection in equity markets. Still, a minor downtrend would be enough to bringgold's role in a portfolio back to the forefront, he said.
He added that gold right now is more attractive as a risk hedgethan an inflation hedge.
Although rising inflation pressures are positive for gold prices,Milling-Stanley said that the outlook is still uncertain. He explained that inthe last significant inflationary period in the 1970s, inflation was elevatedfor several years; he added that gold prices rose 16% during that period.
"For gold to go back to returning 15% or 16% a year,primarily as a result of high inflation, I think clearly inflation has to lastabove that level for more than four months," he said.
By Neils ChristensenFor Kitco News
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