Gold hasn’t lost its luster even as the Fed continues to raise rates – State Street’s George Milling-Stanley

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(Kitco News) – The gold market remains in a healthy position even as the Federal Reserve looks to raise interest rates to nearly 3.5% this year and potentially to 4% next year, according to a market analyst. .

In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said he is not surprised that gold has held up well after the Federal Reserve’s decision to raise interest rates by 75 basis points. , the biggest move in 28 years.

The Federal Reserve was asked to aggressively tighten monetary policy as inflation hit another 40-year high of 8.6% last month. However, Milling-Stanley said gold investors are starting to recognize that the US central bank and its leader Jerome Powell are in a very precarious position.

“The Federal Reserve is walking a very narrow tightrope,” he said. “Powell wants to stifle some demand problems to reduce inflation, but he doesn’t want to push the economy into recession.”

Milling-Stanley added that, ultimately, any decision the Fed makes will be positive for gold. “If the Fed doesn’t raise interest rates fast enough, then inflation will keep going up and if they move too fast, they risk a recession. Both scenarios are positive for gold. in gold win.”

Rising risks to the US economy were also reflected in the Federal Reserve’s latest economic forecasts. The US central bank forecasts US GDP growth of 1.7% over the next two years, a sharp drop from the previous GDP forecast of 2.8% and 2.2%, respectively.

While the Federal Reserve’s aggressive monetary policy stance is starting to lift real yields, a negative headwind for gold as a non-income asset, Milling-Stanley said investors need to stay focused on the bigger picture.

He added that real interest rates would not be high enough to offer investors significant protection against increasing economic volatility and uncertainty. He said research shows real yields need to stay above 2% before it poses a problem for gold investors.

“We’re still a long way from where yields need to be to scare off investors,” he said.

In addition to low interest rates, Milling-Stanley said gold will continue to be an important portfolio diversifier as equity and bond markets deplete. While gold held firm after the Federal Reserve’s 75 basis point move, the S&P saw significant weakness falling more than 3% on Thursday.

Gold prices are relatively unchanged for the year, while the S&P 500 is down more than 23%, falling into bear market territory.

“Despite rising interest rates, gold is still the best defensive asset investors need,” he said. “Gold can answer many of the questions investors are asking themselves and their advisors.”

As for how much gold an investor should keep in their portfolio, Milling-Stanley said that, on average, investors should keep between 2% and 10% in their portfolio. He added that in “tough times”, research shows investors should double their exposure by as much as 20%.

“I’m not saying everyone should go to 20%, but mathematically, that was the ideal level according to our research,” he said.

Whether or not we’re in turbulent times, Milling-Stanley said it depends on individual investors.

“We have war, we have inflation, we have pestilence,” he said. What else would you like, a plague of locusts to convince you that we are in troubled times?”

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. It is not a solicitation to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article are not responsible for losses and/or damages arising from the use of this publication.

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