According to one market strategist, gold prices will still rise even if Federal Reserve Chairman Jerome Powell is hawkish in his highly anticipated speech on Friday at the annual central bank symposium in Jackson Hole.
Invesco Chief Global Market Strategist Kristina Hooper said there is no reason why investors should not expect Powell to signal that the central bank will maintain its aggressive monetary stance.
However, Hooper reiterated that it was just talk. The hawkish stance in August does not prevent the central bank from changing interest rates at the next meeting on the decision on monetary policy on September 21.
There is considerable uncertainty about the next move by the US central bank. Markets assume a 50/50 chance that the Federal Reserve will raise the federal funds rate by either 50 or 75 basis points. According to Hooper, the central bank will raise interest rates by 50 basis points, which will mean a turn in its monetary policy.
The CME FedWatch tool showed that year-end interest rate forecasts will range from 3.75% to 4.00%. However, Hooper believes that by the end of the year, interest rates will rise to just 3% or even lower.
One of the important long-term problems is the growing public debt and deficit. On Wednesday, President Joe Biden announced a program to write off student loans. The government will forgive up to $10,000 in federal student loans for borrowers with incomes of less than $125,000. At the same time, the government will waive up to $20,000 for Pell Grants recipients.
The National Taxpayers Union estimates that the loan write-off program could cost the government more than $329 billion over ten years.
With the central bank expected to start a slow reversal in September, analysts say the current price of gold could be an attractive entry point for investors.
Even though interest rates will continue to rise, at least for now, investors still have other reasons to hold some precious metals.
And while gold price performance has been disappointing for most of the year, investors should ignore short-term price action and focus on long-term potential.
The most compelling reason to hold gold is diversification.
