The Federal Reserve is on the verge of changing its monetary policy, but this will not be enough to stop the growing inflationary pressures. And according to one market strategist, it is only a matter of time before investors return to gold to protect their wealth.
As the Fed begins its two-day monetary policy meeting, expectations are growing that the central bank will reduce its monthly bond purchases.
They have already determined that reducing the volume of purchases will lead to a reduction in asset purchases by $15 billion each month. The reduction will consist of $10 billion worth of US bonds and $5 billion worth of MBS. Since the Federal Reserve buys $80 billion worth of US debt instruments every month, it will take a total of eight months to complete the tapering process.
This means that if they start tapering in November, they won't complete the tapering process until June 2022.
At the same time, rate increases are expected from June. However, the real question is whether the current rise in inflation is temporary. Inflation has risen to its highest level since 2008.
The Fed supports the idea that the growth in inflation is temporary due to supply chain bottlenecks and labor shortages. However, many analysts believe that raising interest rates will not solve the problem of shortages in the supply chain. If the shortage in the supply chain is constant, then there will be an increase in inflation. It is this fact that has put the Federal Reserve in an extremely difficult position.
However, Robert Minter, Aberdeen Standard Investments' director of the investment strategy, said that the new aggressive tone of the Fed will not be able to stop the growth of inflation. In addition, the tighter monetary policy will not solve the backlog in ports and the appearance of new microchips either. The most they will do is create a new obstacle to increasing investment. That being said, the policy of the Federal Reserve System cannot solve the problem from the supply side as well.
Minter added that the ultimate risk is that rising inflation will lead to stagflation as global consumption falls.
Looking at the gold market, he replied that the current price would attract investors looking for protection and value. It was only just a matter of time.
Moreover, he said that it is not only the Fed who was unable to cope with inflation caused by the continued decline in global supply. The growing demand for raw materials will keep inflation high for a long period.
And the global drive to increase the number of renewable sources of clean energy will continue to stimulate demand for raw materials such as copper and aluminum.
Along with gold, Robert Minter is also optimistic about silver, as this metal is involved in the green energy revolution. He added that silver will quickly become such an important industrial metal as copper and aluminum.