“Gold’s Long-Term Rally Outlook Despite Federal Reserve Hammer”

Investing.com – Gold’s overnight close to $2,080 an ounce last Thursday could be just the beginning of a long-term rally into 2023, as market uncertainty and investor jitters drive prices of the precious metal higher, according to a market analyst. .

George Melling-Stanley, chief gold analyst at State Street Global Advisors, said he expects intense safe-haven demand to outweigh any downside risks from higher interest rates from the Federal Reserve.

“I don’t think we’ve seen the peak of gold’s rallies, as the yellow metal is now in a solid position to continue its climb,” he emphasized.

The comments come as gold prices have fallen from record highs but remain in strong positive territory. It is trading at $2,029 an ounce, up 0.2%. While spot contracts rose by 0.15%, to 2020 dollars an ounce.

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Gold and Federal Hammer

While Melling is bullish on gold, he added that investors need to be careful because volatility could rise in the near term, as markets largely ignore monetary policy expectations from the Federal Reserve. After raising interest rates by 25 basis points on Wednesday, the Federal Reserve moved its monetary policy to a more neutral stance. However, Powell has been very clear that the central bank is not ready to shift to rate cuts anytime this year.

“We have a view in the committee that inflation is not going to come down that quickly,” Powell said in his press conference on Wednesday. “It will take some time, and if these predictions are broadly correct, it will not be appropriate to cut rates and we will not cut rates.”

Despite these expectations, CME FedWatch shows that markets expect interest rates to end the year 100 basis points lower, with the first rate cut due in July.

“Powell doesn’t see room for rate hikes this year and I’m inclined to believe him,” Melling added. “The last time he thought the market wasn’t listening to him was last summer, he came out and slapped them really hard. If inflation doesn’t come down enough, Powell will raise rates next summer.” June.”

Although the Fed’s tightening cycle may not be over, Melling Stanley said he does not expect this situation to have a significant impact on gold. He added that the Fed is still closer to the end of its tightening cycle and in this environment, the US dollar will continue to struggle.

“The US dollar peaked in October and we haven’t seen much strength since then. If the Fed is nearing the end of its tightening cycle, then the US dollar won’t pose much of a threat to gold.”

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What drives prices?

Mealing Stanley said he expects safe-haven demand for gold to be the biggest driver of gold. He added that gold remains attractive, precisely because the ongoing banking crisis is far from over.

“We don’t see any weakness in gold demand anytime soon, as investors look for protection to hedge against recession, inflation, market turmoil and a potential banking crisis,” he said.

Adding to Melling’s bullish outlook, he sees gold as capable of holding strong support levels around $2,000 an ounce. He explained that the demand of central banks creates a strong ground in the market and this trend is not expected to end.

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