Gold's party is just getting started as prices hit new all-time highs - abrdn's Minter
Expectations that the Federal Reserve will cut interest rates are pushing gold prices to fresh record highs, but one market strategist says that the best is yet to come for gold. In an interview with Kitco News, Robert Minter, Director of Investment Strategy at abrdn, said Federal Reserve Chair Jerome Powell’s testimony before Congress last week appears to be the watershed moment markets have been waiting for.
During his two days of testimony on Capitol Hill, Powell told Congress that risks to the economy are now balanced. “Elevated inflation is not the only risk we face,” Powell said in his prepared remarks.
Following last week’s comments, gold prices managed to hold support at $2,400 and have now broken the top range of their two-month consolidation with August gold futures hitting a new all-time high of $2,470.20 an ounce.
The rally comes as markets have all but fully priced in a rate cut in September. Minter said that he is not surprised that Powell and the Federal Reserve are shifting their focus away from inflation. He noted that rising consumer debt in an elevated interest rate environment could pose significant risks for the economy. Minter pointed out that higher interest rates have driven up car loans, along with interest rates on credit cards.
“It’s not just the Fed fund rate. It’s not just the prime rate. There are a lot of credit market products that are higher than they were before,” he said. “All of which argues for a lot less leeway. It isn’t going to take much labor market stress to really cause a problem.” Although risks are rising, Minter said there is still a chance that the Fed can avoid a recession, which is why gold has so much potential.
“There are a lot of risks and the Federal Reserve is a little late, but they are not fatally late,” he said. “This is why there is a strong case for a September rate cut. Because the Fed is behind, they will end up doing a little more, a little faster to try and catch up.” Minter said that in this environment, it’s only a matter of time before investor demand drives gold prices significantly higher. As to how high gold prices can go, Minter added that he is no longer focused on a specific price target, as he pays more attention to the trend and upside potential.
With its new all-time highs, gold prices are up more than 19% in 2024, but Minter said this is just the start of the precious metal’s full potential. Minter pointed out that holdings in gold-backed exchange-traded products have fallen to their 2019 levels. He added that all the buying during the pandemic has been completely unwound in the last two years.
Minter said that this trend is already starting to reverse and will only pick up momentum as the Federal Reserve embarks on a new easing cycle. “Powell, with his comments last week, sent investors an invitation to gold’s party and now we are just waiting for the RSVPs,” he said. “When you look back at the last three Fed fund cycles, they’ve resulted in gold eventually rising 57%, 235%, and 69%.”
At the same time, Minter said that he doesn’t expect central banks will stop their gold purchase programs anytime soon as they continue to diversify away from the U.S. dollar. He pointed out that emerging market central banks hold only about 5% of their foreign reserves in gold, while developed market central banks hold about 12% of their assets in gold.
While gold is attracting the most attention, Minter said that he is also bullish on silver and copper. While investors are all jumping on the AI bandwagon, he said that few people are paying attention to the infrastructure needed to drive this new technology.
He explained that the world is going to need a lot more copper to meet growing energy demand. At the same time, he expects silver to actually outperform gold as momentum in the precious metals market picks up.
“Looking at the last three rate cycles, in 2000 gold went up 57%, but silver went up 65%; in 2006, gold went up 235%, but silver went up 318%; and in late 2018, gold went up 69%, but silver went up 101%,” he said. “Silver is the higher beta play.”
Source: https://www.kitco.com/