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Putting gold's lackluster performance into perspective
By: Neils Christensen | May 6, 2022

The gold market saw another lackluster performance this week, as the price hit a brick wall at $1,900 an ounce. The selling pressure came as the U.S. dollar continued to trade near its highest level in 20 years, benefiting from the Federal Reserve's aggressive plans to raise interest rates.

Despite gold's disappointing performance, many analysts have noted that the market still remains reasonably healthy and is consolidating after a strong performance in the first quarter. The precious metal has faced some challenging hurdles in the last two months as Federal Reserve started to signal it would raise interest rates by 50-basis points.

The U.S. central bank met those expectations Wednesday, hiking the Fed Funds rate to between 0.75% and 1%. Although the Fed still expects to raise interest rates at the next two meetings aggressively, some analysts are starting to see a limit to the central bank's hawkish stance. Federal Reserve Chair Jerome Powell, even pushed back on expectations that the central bank could raise interest rates by 75 basis points in June.

Yes, interest rates will continue to move higher through the summer, but markets look for a top of around 3%. Many analysts have noted that this is still a positive environment for gold, as elevated inflation will keep real interest rates relatively low.

Following the Fed decision, Kitco News had a chance to talk with George Milling-Stanley, chief gold strategist at State Street Global Advisors. He provided an interesting perspective on the current environment, saying that gold will continue to do well in a low real interest rate environment as an essential diversification tool.

"As I have said before, gold has nothing to fear from rising interest rates. Equity markets, however, are a different story. They will have something to fear from higher interest rates," he said. "There are more threats to the likely course of the stock market right now than there are to the gold market,"

Looking at financial markets, the gold price has dropped 3.5% since March 22, when Powell started signaling the central bank's aggressive stance. During that same time, the S&P 500 has fallen 9%. The broad equity index is down nearly 14% for the year, while gold is up 4%.

State Street isn't the only one that is bullish on gold. In an interview with Kitco's Anna Golubova, Wells Fargo's head of real asset strategy John LaForge said that gold is still on target to push above $2,000 an ounce by the end of the year.

"We're in an environment where defensive assets should do well," he said. "The value is there. We're in the middle of a supercycle. I think this whole unloved gold thing will turn around."

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