Gold has struggled to hold recent gains because of shifting interest rates expectations, but one market strategist warns that investors are focusing too much attention on interest rates while ignoring the bigger picture.
In a phone interview with Kitco News, George Milling-Stanley, head of gold strategy at State Street Global Advisors – the firm behind the world’s largest gold-backed exchange-traded fund SPDR GLD – said that markets are “overreacting to a potential interest rate hike.”
He added that the latest comments from Federal Reserve Governor Lael Brainard have probably set the groundwork for the central bank to leave interest rates unchanged at next week’s meeting. However, he added that a 25-basis-point move in September is not going to be disastrous for the yellow metal, which has seen almost 30% gains since its lows in December.
“I don’t think the gold market has anything to fear from U.S. monetary policy,” he said. “Even if rates rise 1% this year, the important thing to remember is that real rates will still be negative and that is ultimately positive for gold.”
Milling-Stanley added that he is also not worried about gold’s recent lackluster performance. He said that after a 30% rally, it is natural that gold should see a consolidation period. He said that what is the most important factor for investors is that the gains seen so far are sustainable. He added that gold is currently building a base to set up the next leg in its long-term rally.
“Are we going to see a lot of gains later this year? I don’t think we are going to see $2,000 gold, but prices could be a somewhat higher by the end of the year,” he said. “Personally, I am not disappointed with what gold has done.”
As to what will be the next phase in the bull market, Milling-Stanley said that physical demand from important gold-consuming nations like China and India could drive prices modestly higher. He explained that the market is heading into an important seasonal period that is traditionally positive for physical gold demand. He added that it could be even stronger, making up for weakness since earlier in the year.
Although it’s now time for the physical market to shine, Milling-Stanley said that he is still not discounting the impact continued investor demand will have on the market. Instead of taking a short-term view on the metal, he said that investors should look at it for its long-term, safe-haven properties.
“I think gold is a strategic asset that gives you important diversification, that gives you long-term protection and that is what you should focus on, not what the Fed is going to do in the near-term,” he said.
Courtesy: Neils Christensen
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