Investors want to hold on to their gold as the pain of rate hikes comes – SSGA’s George Milling-Stanley

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(Kitco News) – Now is not the time to liquidate your major gold positions as the Fed has made it clear that the economic crisis is coming, according to a gold market strategist.

In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said gold prices could continue to struggle as three components of the US economy show a resilient force even if the Federal Reserve maintains its aggressive monetary policy. .

Solid gains in the US dollar, which is trading near its highest level in more than two decades, relatively healthy consumer demand and relative strength in equity markets are the three forces currently facing the gold market and which maintain a ceiling on prices.

“At the moment, the gold market is not in the driver’s seat. Until we see these conditions change, the outlook for gold will remain somewhat limited,” he said.

Although stock markets have been on a solid downtrend for most of the year, with the S&P in 21% bearish territory, Milling-Stanley said the selloff was muted compared to the rally seen over the course of the year. of the last 13 years.

“Stock markets have been rallying to cheap money since 2008 and free money since 2018, and they’re down, but they still need to go further if Powell is to get inflation back to 2%,” said- he declared. “Powell will continue to raise rates until the stock market falls further. It could be a few months before investors start to feel the real pain of higher interest rates.”

Although investment demand has been lackluster for most of 2022, Milling-Stanley said the impending economic slowdown from rising interest rates is why investors should hold on to their top gold holdings. .

“Inflation is still at a worrying level, and Powell has made it clear that he’s going to have to hurt the economy to bring it down,” he said. “We are facing a lot of macro and geopolitical uncertainties and in this environment I would definitely not sell my safe-haven assets. At these prices I would be looking to add to my core position, which I think we are seeing.”

Milling-Stanley added that the threat of an economic slowdown and possible recession is one reason gold has been able to maintain critical long-term support at around $1,675. And while gold prices may struggle to push higher at year-end, Milling-Stanley said he doesn’t expect gold prices to fall much lower.

“The selloff in gold we’ve seen is coming from weaker hands of speculators who thought gold was going to rally to $2,000. We’ve shaken off a lot of those weaker hands and we’re left with investors who cling to core strategic allocations. Those aren’t going anywhere,” he said. “The world is still a very uncertain place and that’s exactly when you want to have some exposure to gold.”

Milling-Stanley’s comments on gold come after the Federal Reserve raised interest rates by 75 basis points on Wednesday. Along with the very steep rate hike, the Central Bank signaled that the Fed Funds rate is expected to peak at 4.6% in 2023.

However, Milling-Stanley said he doesn’t pay too much attention to the latest economic projections. He added that he does not believe the Federal Reserve has reached its peak of hawkishness and that interest rates will continue to rise until inflation is brought under control.

“Nobody knows where interest rates are going. Powell is right to sound hawkish and keep telling the market that he’s going to face inflation and that his 2% target is unconditional. At some point, the market will believe it and that’s where the pain comes in,” he said.

Disclaimer: The opinions 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 the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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