After recent headlines on the fear of inflation, one of the last assets to surge was the gold market.
According to Portfolio Wealth advisor’s president and CIO, Lee Munson, the reason behind this is the “regime change” in the gold market.
Munson said that before the Federal Reserve starts increasing the rates, the rate of gold will go up to $2,200, and therefore investors shouldn’t rush into buying gold right away. “I don’t buy gold for a crisis. I buy it because when there’s a crisis, and I think the central banks are going to print money like there’s no tomorrow, that’s the time when I want to have a larger holding of gold,” he said. “My ultimate target in this cycle of money printing is $2,200 an ounce. That’s between here and when the Fed starts to raise.”
Whether gold increases along with the balance sheet expansion and not because of the inflation fears, it would still be a win-win for gold.
Munson suggested that investors need to keep an eye on the expansion of the money supply in order to get a better understanding of gold price moves.
The US is presently going through a phase of printing money which probably won’t stop anytime soon while the Fed has been forced to keep in mind all the corporate and household debts, at times of recessionary environments, and therefore is required to stop the rates from going high.
While acknowledging the risk of inflation Munson also added, “Getting up to 3% inflation would be very dramatic. And I think many people are thinking of the late 70s, early 80s type of inflation — when gold peaked. I don’t think that’s the magnitude we’ll get.”
Even though a lot of investors are worried that if the inflation rises, then the Federal Reserve may overreact. However, Munson stated that the Federal Reserve controlled the money and the rates, therefore it was highly unlikely for it to lose any control.