As the price of gold continues to hit highs, chatter about the metal providing a natural hedge to inflation was also rising.
George Milling-Stanley, chief gold strategist at State Street Global Advisors, believes that as market uncertainly continues and potentially worsens, gold will provide a safe haven for investors as more than just an inflation hedge.
“Nothing goes up in a straight line, but we are likely to be seeing a stronger trend for gold as the year unfolds,” he said. Gold has spent much of the last six or seven years struggling to break through overhead resistance around the $2,000 an ounce level. But in February of last year, gold hit that and has since sustained the momentum.
“We believe that that that strength could well continue, provided the uncertainties in the markets remain, macro-economic uncertainties, with inflation being sticky and potentially going higher, and also geopolitical uncertainties,” he continued. “We have an armed conflict in Europe with the potential to turn nuclear at the push of a button. The conflict in the Middle East has spread well beyond Israel’s borders, there’s now open conflict between Israel and Iran and we’re not terribly confident about ceasefire talks. It’s a messy situation.”
SSGA forecasts a 20 percent probability that gold could hit $3,100 per ounce this year, its bearish price scenario. On Tuesday, gold rose to an all-time high of $2830.06 and has shown continued growth on Wednesday.
Gold has long been an inflationary hedge and has had a buoyant year in the wake of uncertainty about the Federal Reserve’s interest rate stance and the potential impact of President Trump’s policies, including those on tariffs. (This week the U.S. hit China with tariffs and made short-terms tariff deals with Mexico and Canada. )
“In spite of all of the uncertainties, things have become even more favorable for gold with the incoming administration and with all of the uncertainties and the volatility that that’s bringing,” said Milling-Stanley.
He added, “The incoming administration’s immigration policies are likely to put upward pressure on wages in the United States.”
These indicators all point to gold as the natural hedge for a diversified portfolio that seeks to avoid the pitfalls of volatility in the debt and equity markets.
“People buy gold not just because they think the price is going up but because of the protective attributes that gold offers a portfolio, it doesn’t have a strong relationship with stocks or bonds so it’s offering a level of diversification that few other assets can manage.”
Milling-Stanley does not, however, expect that potential extensions of tax cuts for the wealthy to be inflationary, because these people will not necessarily spend the extra money. Tax cuts for lower income people could lead to higher prices as people immediately spend their savings.
