Gold prices are consolidating at above $3300 but new bullish momentum has been elusive due to investors’ adjustment.
One fund manager, however, asserts the valuation at present is fully justified.
Robert Minter of abrdn’s Director of ETF Strategy, said in an interview to Kitco News that gold is expected to remain stable, and no major weakness will be seen as US debt spirals.
US debt
The US has recently reached a record-breaking debt of $37 trillion.
Minter noted that Europe’s spending has increased significantly in the past few months.
I went back and checked the outstanding US Treasury Debt in 1993. He said that since then it has increased by about 90%, which is similar to the increase in gold over this period.
If the US raises its debt to 900% then you in Europe must do the same, otherwise you will have huge distortions of currency that can impact the trade and economy.
Minter noted that the devaluation of currencies is not immediately evident because countries around the world are spending deficits at similar rates.
He pointed out that it was manifested in the gold price, which consistently traded near records against major currencies around the world.
Gold is the only money that does not represent someone else’s obligation. The level of global debt is the only reason why gold’s price above $3,000 can be justified.
Gold is not likely to fall below $3,000.
The most active gold contract at the COMEX is $3,360.22 an ounce. This price has remained largely unchanged from its previous closing.
Gold prices fell to an all-time low last week as demand for safe havens was affected by a ceasefire agreement between Iran and Israel.
Investors have been encouraged to buy due to the growing expectation of a rate reduction by the US Federal Reserve.
Short-term hazards
Minter remains optimistic in regards to gold’s long-term prospects, but is aware of the increasing risks that it faces.
The economic pessimist has reached its peak and any change in the outlook may diminish gold’s appeal as an asset of safety.
Minter, however, suggested that investors should view short-term price corrections as an opportunity to purchase.
The Federal Reserve could also trigger a gold rally by the end of this year, he said.
Fed cuts rates
Minter believes that the Fed, in spite of their present hesitation, will be forced to reduce interest rates at some point.
The two-year rate is 3.78% and much lower than current Fed Funds rates, which indicates that action will be needed soon.
The bond market tells us interest rates are 80 basis points too high. Therefore, the Federal Reserve may be forced to lower rates this year by 50 basis points.
The Federal Reserve will begin to lower interest rates, which is expected to lead the next leg in gold’s rise.
CME FedWatch indicates that the probability of a Federal Reserve rate cut this month has increased.
The markets have already begun to anticipate easing in September as well as December.
More gains are possible
Minter believes that the performance of gold in the second part of this year may be similar to last year.
If the US Fed continues to cut interest rates, gold could rise by $300 an ounce, possibly reaching as high as $3,700.
Between June and September of last year there was an increase in ETFs demand, ahead of Federal Reserve rate cuts expected. He said that we also witnessed a good price increase, going from $2300 to $2600.
As ETF investors return to gold due to rate reductions, I believe we will see another $300 increase in the price of gold.
This article Why Gold above $3,000 Is the New Normal appeared first on The ICD
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