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(Kitco News) – Gold Investors should not expect the precious metal to give up at $2,000 an ounce without a fight, according to a market analyst.
In a phone interview with Kitco News, Chantelle Schieven, head of research at Murenbeeld & Co., said that gold has found a new range and that the precious metal is building a solid base between $1,900 an ounce and $2,000 an ounce.
the gold The market has benefited from significant safe-haven demand as the Russian invasion of Ukraine enters its fifth week. Even if the war in Eastern Europe is resolved, Schieven said he doesn’t expect the demand for safe haven to dry up completely. He added that the conflict has become a flashpoint that is changing the global geopolitical landscape and financial markets.
“The general fear in the market is not going to go away anytime soon and that will continue to support goldhe said. “Gold has established solid support around $1,900 and a strong trend is emerging even if geopolitical tensions start to ease.”
Schieven said the war has caused nations to draw new lines between allies and opponents. He added that globalization trends are being interrupted as countries seek to develop their own supply chains, which have been broken due to sanctions that Western nations have imposed on Russia.
He also pointed out that Western governments are increasing their military spending, which will increase deficits.
In the current environment, Schieven said Russia’s friendly nations such as China could continue to diversify away from the US dollar, meaning gold will become an essential tool for central banks.
“When countries don’t trust each other and don’t trust each other’s currencies, gold becomes a strategic asset. It will add credibility to a country’s currency,” he said.
Along with rising geopolitical tensions, Schieven said slowing globalization trends will also add to rising inflation, as developing domestic supply chains will become more costly for companies.
Schieven added that rising consumer prices will keep real interest rates in negative territory, providing another crucial element of support for the precious metal.
The Fed has no plans to get ahead of inflation
Although inflation is expected to remain elevated through 2022, Schieven said he does not expect central banks, specifically the Federal Reserve, to take aggressive action to control it. He added that Federal Reserve Chairman Jerome Powell has talked about aggressively tightening monetary policy; however, following up on that conversation with action will be difficult.
“The Fed is deadlocked because of debt levels. Higher rates would kill the economy,” he said. “The Fed needs inflation because it’s the only way the government is going to be able to deal with its debt.”
In a keynote speech at the National Association for Business Economics’ Annual Economic Policy Conference on Tuesday, Powell set the stage for the central bank to raise interest rates by 50 basis points in May.
Along with Powell’s comments, the central bank last week signaled that it could raise interest rates seven times this year and start reducing its balance sheet in May.
Schieven said that while seven interest rates seem like a lot, investors need to look at the big picture. He explained that if the central bank achieves its target, interest rates would still be below 2% by the end of the year.
However, looking beyond 2022, Schieven said that the Federal Reserve will not be able to continue with more rate hikes.
“I think the economy could support interest rates of around 2%. It would not push the economy into a recession,” he said. “But I doubt they can do more rate hikes next year. I think interest rates will stay at 2%.”
As for gold prices for 2023, Schieven said that once it is clear that the Fed is stuck in a lower neutral rate, gold it will take off again with prices above $2,100. He added that in the long term Murenbeeld & Co. see gold prices are above inflation-adjusted all-time highs of around $3,000 an ounce.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has gone to great lengths to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage arising from the use of this publication.