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(Kitco News) – The gold market looks to end the week down 2%; However, many precious metals investors see the price action as a major win as gold holds up against the most aggressive Federal Reserve in nearly 30 years.
After inflation hit a new 40-year high last month, the Federal Reserve had no choice but to hike interest rates by 75 basis points this week. At the same time, the central bank also signed more aggressive measures as it now expects interest rates to potentially rise to 3.5% by the end of this year and reach 4.00% in 2023.
Markets are even pricing in another 75 basis point move next month as Federal Reserve Chairman Powell said inflation remains the biggest threat to the economy.
Despite this hawkish sentiment, gold prices ended the week just below $1,850 an ounce, which has been a critical psychological level for the past month. Although gold prices ended the week in negative territory, by and large they continue to outperform equities. The S&P 500 expects a 5% weekly loss as it tumbles deeper into the bear market.
Gold prices are relatively flat so far this year, while the broad stock market index is down nearly 23%.
The volatility in the market is a big reason why gold has held up in the face of the Federal Reserve’s aggressive monetary tightening. Inflation continues to rise and the Fed’s dovish stance increases the risk of the economy sliding into recession.
George Milling-Stanley, chief gold strategist at State Street Global Advisors, told Kitco earlier this year that gold has nothing to fear from the Fed and is proving right. This week he noted that gold wins no matter what the Fed does.
Regarding the amount of gold an investor should own, Milling-Stanley said research shows the optimal gold content in a portfolio is around 10%; in turbulent times this level can double. If these aren’t turbulent times then I don’t know what are.
Milling-Stanley isn’t the only bullish analyst on the market. Commodity analysts at Societe Generale said gold could climb back above $2,000 an ounce in the third quarter.
“We are still supportive in the very near term as we expect monetary and fiscal policy tightening, but not as fast as inflation,” the analysts said.
Finally, the debate between gold and bitcoin as the best store of value seems to be settled. This has not been a good week for the cryptocurrency markets after Celsius Network announced it would halt all transactions on its platform. Bitcoin, the leading cryptocurrency, is now testing support just above $20,000 an ounce. Bitcoin is down a whopping 55% year-to-date.
Some analysts expect further digital currency pain as rising interest rates reduce market liquidity.
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