Gold prices hit historic highs! Analyst: The best time has not yet arrived
2024-07-17
1781
It is expected that the Federal Reserve will cut interest rates to push gold prices to a new historical high, but a market strategist said that the best time for gold has not yet arrived.
In an interview with Kitco News, Robert Minter, Director of Investment Strategy at abrdn, stated that Fed Chairman Jerome Powell's testimony in Congress last week seemed to be a long-awaited turning point for the market.
During his two-day testimony in Congress, Powell told Congress that the risks currently facing the economy are balanced. Rising inflation is not the only risk we face, "Powell said.
After last week's comments, the price of gold managed to stabilize at $2400 per ounce and has now broken through the top of a two month consolidation range, with gold futures prices reaching a new historical high of $2470.20 per ounce in August.
The rise in gold prices occurred when the market had almost fully priced in the September interest rate cut.
Minter said he is not surprised that Powell and the Federal Reserve are shifting their focus away from inflation. He pointed out that rising consumer debt in a high interest rate environment could pose significant risks to the economy.
Mingte pointed out that high interest rates have already pushed up the interest rates of car loans and credit cards.
This is not just the federal funds rate, nor is it just the main rate. Currently, many credit market products have higher interest rates than before, "he said." All of this indicates that there will be less room for maneuver. Any slight pressure on the labor market can cause problems
Despite the rising risks, Minter stated that the Federal Reserve still has the potential to avoid an economic recession, which is why gold has such great potential.
There are many risks, and the Federal Reserve is a bit late, but not fatally late, "he said." That's why there is ample reason to expect a rate cut in September. Because the Federal Reserve is lagging behind, they will eventually accelerate their pace and try to catch up
In this environment, Minter said, it's only a matter of time before investor demand will significantly drive up gold prices.
As for how high the gold price can rise, Mingte added that he is no longer focused on specific price targets, but more on trends and upward potential.
With gold reaching a new historical high, the price of gold is expected to rise by over 19% in 2024, but Mintel stated that this is just the beginning of the full potential of precious metals.
Mingte pointed out that the holdings of exchange traded products supported by gold have dropped to the level of 2019. He added that in the past two years, all purchases made during the pandemic have completely disappeared.
Minter stated that this trend has begun to reverse and will accelerate as the Federal Reserve launches a new easing cycle.
Powell extended an invitation to investors to attend the gold party in his comments last week, and now we are just waiting for a response, "he said." Looking back at the past three federal fund cycles, they ultimately led to gold rising 57%, 235%, and 69% respectively
Meanwhile, Minter stated that he does not believe central banks will soon cease their gold purchasing programs as they continue to diversify away from the US dollar. He pointed out that emerging market central banks only hold about 5% of their foreign exchange reserves for gold, while developed market central banks hold about 12% of their gold assets.
Despite gold receiving the most attention, Minter expressed optimism towards silver and copper. He said that although investors are pursuing artificial intelligence, few are paying attention to the infrastructure needed to drive this new technology.
He explained that the world will need more copper to meet the growing energy demand.
At the same time, he expects silver to perform well as momentum accelerates in the precious metals market.
Looking at the past three interest rate cycles, in 2000, gold rose by 57% but silver rose by 65%; in 2006, gold rose by 235% but silver rose by 318%; at the end of 2018, gold rose by 69% but silver rose by 101%. "He said," Compared to gold, silver has higher price volatility and is more susceptible to significant market fluctuations
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