In the Asian session on Wednesday, gold continued yesterday's rally, approaching the 2480 mark. As gold prices hit new all-time highs, Robert Minter, director of investment strategy at Abrdn, said the party for gold has just begun. He pointed out that the market's expectation that the Federal Reserve will cut interest rates is driving gold prices to new records.
In an interview, Minter said Powell's testimony before Congress last week seemed to be the turning point that the market had been waiting for. Powell told lawmakers that the risks facing the economy are now balanced and high inflation is not the only problem.
After Powell made the above remarks, gold prices successfully held the support level of $2,400 and set new highs in succession this week.
The rise in gold prices comes as the market has almost fully priced in expectations of a September rate cut by the Federal Reserve.
Minter said he is not surprised that Powell and the Fed are shifting their focus away from inflation, noting that rising consumer debt poses a significant risk to the economy in a high-interest rate environment.
Minter noted that higher interest rates have increased the stress of auto loans and credit card interest.
“It’s not just the federal funds rate, it’s not just the benchmark rate. There are a lot of credit market products that are at higher rates than they were before, and all of that means the economy has less cushion. It only takes a little bit of labor market stress to cause a big problem,” he said.
Despite the increasing risks, Minter believes that the Fed still has a chance of avoiding a recession, which is why gold has great potential. He said: "The Fed is behind the curve, and they will eventually cut rates faster and more sharply to catch up, which is a strong case for a rate cut in September."
Minter said that in this environment, it is only a matter of time before investor demand drives gold prices significantly higher. As for how high gold prices can go, Minter added that he is no longer focused on specific price targets because he is more focused on trends and upside potential.
At record highs, gold prices have risen more than 19% so far in 2024, but Minter said this is just the beginning of gold's full upside potential.
He noted that gold ETF holdings have fallen to 2019 levels. Minter said the trend (of falling gold ETF holdings) has begun to reverse and will only accelerate when the Federal Reserve launches a new easing cycle.
“Powell’s comments last week are an invitation to the gold party for investors. Looking back at the past three fed funds rate cycles, they ultimately led to gold prices rising by 57%, 235% and 69% respectively,” he said.
At the same time, Minter does not expect central banks to stop their gold purchases anytime soon as they continue to diversify their investments in the fight against dollarization. He noted that emerging market central banks hold only about 5% of their foreign exchange reserves in gold, compared with about 12% for developed country central banks.
While gold has attracted most of the attention, Minter said he is also bullish on silver and copper. While investors are jumping on the artificial intelligence bandwagon, he said few are paying attention to the infrastructure needed to power the new technology.
He explained that to meet growing energy demands, the world will need more copper.
At the same time, he expects silver prices to outperform gold prices as the precious metals market momentum increases. He said: "Looking back at the past three interest rate cycles, in 2000, gold rose 57%, but silver rose 65%; in 2006, gold rose 235%, but silver rose 318%; at the end of 2018, gold rose 69%, but silver rose 101%."
Article forwarded from: Jinshi Data
