FX.co ★ Gold prices could turn up, thanks to tighter Fed policy

The Fed has charted a clear path for tightening, so gold could now climb to new highs, above $2,000 an ounce. George Milling-Stanley, chief strategist at State Street Global Advisors, said the monetary policy decision was more hawkish than he expected, but was a lot more dovish than the market projected. Also, the US central bank did not only raise interest rates by 25 basis points, but also signaled that as early as the next meeting, they could start cutting their balance sheet. They also updated theirforecasts, downgrading economic growth and raising inflation expectations for 2022. They did not forget to announce a potential seven-fold rate hike this year.

Although the move seems aggressive, Milling-Stanley said it would not be enough to scare the gold market. He explained that the reaction of gold prices was predictable because now that the Fed's plan is laid out, investors can focus on the growing threat of inflation.

In December, the Milling-Stanley team at State Street Global Advisors predicted that gold prices would range between $1,800 and $2,000 an ounce throughout 2022. It appears that this forecast is becoming more and more a reality.

Data on US CPI, which was released last week, showed that year-on-year inflation rose by 7.9% in February, hitting a new 40-year high. This indicates that inflation will remain high until the end of this year.

But even if inflation hints that it will continue to rise, the Fed will proceed on implementing its plan to curb recession, keeping everything under control. Milling-Stanley said the central bank is doing a good job in keeping the current high inflation under control, as compared to the inflation back in the 1970s.