The Fed won't be able to get inflation under control, gold price is going much higher - Wilshire Phoenix
(Kitco News) - Investors are once again turning to gold, pushing prices backabove $1,800 an ounce, and one firm expects gold prices to continue to move higheras it is unlikely the Federal Reserve will be able to get the inflation undercontrol anytime soon.
In a recent interview with Kitco News, Wade Guenther, managingpartner at Wilshire Phoenix, which launched the Wilshire wShares Enhanced GoldTrust (NYSE Arca: WGLD) earlier this year, said that it's not surprising thatgold has been lackluster through most of the summer as bond yields have beenrising.
The yield on 10-year notes is holding near its highest level inthree months. At the same time, Guenther noted that the yield on 10-year noteshas roughly doubled from last year.
Gold has also struggled to attract safe-haven demand as equitymarkets continue to move from record highs to record highs, Guenther added.
However, Guenther also said that rising inflation and the growingthreat of stagflation are forcing many investors to reevaluate their need forinflation and safe-haven hedge. For the past five months, the U.S. ConsumerPrice Index has been above 5%.
"If you had asked me last year, the gold price was, I wouldbe if inflation was at 5%, I'd have said that we would be at record highs, we'dbe back at 2000 again," said Guenther.
However, instead of supporting gold prices, the inflationpressures have driven expectations for the Federal Reserve to tighten itsmonetary policy. Economists are expecting the Federal Reserve to reduce itsmonthly bond purchases before the end of the year. At the same time, marketsare pricing in a rate hike as early as June of 2022.
"It feels like people still have faith in the Fed and Ijust, but I just, I don't see the Fed getting in front of the inflationcurve," said Guenther.
Guenther added that the current inflation environment isdifferent from the last few years because it isn't being driven by consumer demand.Prices are going higher because of major supply-chain issues around the world.Some economists expect that the global supply bottleneck could take years tofix.
"There is nothing the Federal Reserve can do to fix thesupply chain," he said. "The Fed's tools just don't work on becausethe inflation is on the long side of the track. This is not inflation driven byconsumer demand."
Not only is the Federal Reserve unable to fix the global supplychain, but Guenther also noted that monetary policy could only be tightened somuch. Growing government debt has limited how high interest rates can go, hesaid.
With gold prices back over $1,800 an ounce, Guenther said that heexpects that it is only a matter of time before the market sees new bullishmomentum.
Guenther added that the firm's adaptive gold-backedexchange-traded fund still remains 100% invested in the gold market asvolatility has been relatively low.
By Neils ChristensenFor Kitco News
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