Look For Gold To Test $1,400 As Fed Risk Leaves The Market - State Street
(Kitco News)- A weight has been lifted from the gold market after the Federal Reservesignaled Wednesday that it is in no hurry to raise rates faster than it wasalready expecting this year, according to one gold analyst.
In a telephone interview with Kitco News, George Milling-Stanley, headof gold investments at State Street Global Advisors said that he now expectsgold prices to eventually retest the top of its recent range with a growingpotential that market ultimately breaks through resistance.
April gold futures last traded at $1,326.30 an ounce, up 0.36% on the day.
“Three rate hikes was not a problem last year as prices rose 13% and Idon’t think that three rate hike this year is going to be a problem,” he said.“Gold could do even better than last year.”
Wednesday, the Federal Reserve raised interest rates by 25 basis points, pushing the federal fundsrate to a range between 1.50% and 1.75%. At the same time, the central bank was slightlymore optimistic as it expects the economy to grow 2.7% this year and theunemployment rate to fall to 3.8%; however, the key for gold investors was thatit does not see inflation heating up and signaled only two more rate hikes thisyear. Milling-Stanley said that the lack of any significant forward guidancemade this statement “blander than usual.”
“The latest Fed action is a continuation of its established moderatepace of normalization,” he said. “So with this interest rate business out ofthe way we have a few months were gold can find its natural buoyancy. I wouldexpect gold to take another crack at long-term resistance at $1,400.”
As to what could drive gold above critical long-term resistance,Milling-Stanley said that he sees a couple of factors, the biggest one beinginflation.
“Inflation is back in the conversation again,” he said. “There is agrowing concern that the recent tax cuts won’t lead to economic growth but leadto higher inflation,” he said.
Fed Chairman Jerome Powell also revealed some doubt as to the impact ofthe tax cuts. While the Federal Reserve is the U.S. economy growing by 2.7%this year, its well below government expectations that the tax cuts will boostthe economy by at least 3%.
#Powell: It's unlikely tax cuts will push U.S. #economic #growth to 3%. It would take a significant increase in production to get to that level | LIVE #FED |
— Kitco NEWS (@KitcoNewsNOW) March 21, 2018Powel said that it would take a significant increase in productivity tocreate 3% growth this year.
Milling-Stanley added that it is also more than just the tax cuts.Proposed infrastructure funding will also be inflationary if there is not aclear plan in place that outlines how the government will offset the increasedspending, he explained.
If the Federal Reserve does signal more aggressive tightening late inthe year it will be because of a growing inflation threat, which will continueto leave real rates at low levels and will prove to be positive for gold, saidMilling-Stanley.
Milling-Stanley said that he is also optimistic that global economicgrowth boosts emerging market demand for the yellow metal.
“Demographics and economics in emerging markets are moving in gold’sfavor,” he said. “That will continue to support global prices.”
By Neils ChristensenFor Kitco News
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