(Kitco News) - The gold market's months-long correction has created an attractive entry point for long-term investors, according to one market strategist, who says the metal's ability to hold support around $4,000 an ounce reflects confidence that its structural bull market remains firmly intact.
In an interview with Kitco News, Robert Minter, Director of Investment Strategy at abrdn, said that he expects investors to become less focused on the Federal Reserve's hawkish rhetoric and more focused on the long-term fundamentals supporting gold, including rising government debt and resilient central bank demand.
He added that even if the Federal Reserve does tighten its monetary policy, there is growing recognition that higher interest rates have practical limits.
"We continue to see $4,000 as the place to reload," Minter said. "The $4,000 level looks like a good spot for gold."
He added that despite the pullback, the same structural drivers that have supported gold over the past several years are still in place.
"Higher debt, erosion of purchasing power in the major developed economies," Minter said. "After we got the pullback we're seeing in gold, has there been a dramatic change in central bank buying? No."
He noted that central banks, led by countries such as China and Poland, continue to add to their gold reserves despite this year's correction.
"These aren't trends that have reversed," he said. "They just are getting volatile because of what happened in oil."
In the last few months, some central banks, like Turkey, were forced to monetize their gold reseserve to support their currency and deal with the global energy crisis caused by the Iran war.
However, Minter said that the global energy supply disruption will end when the conflict in the Middle East is resolved.
Along with central bank demand, Minter also pointed to remarkably resilient investment demand. While speculative positioning has shifted, investment in gold-backed exchange-traded funds is still positive for the year, and hedge funds are increasingly positioning for higher prices through the options market.
According to the latest data from the World Gold Council, global gold-backed ETFs saw their total holdings fall by 44.8 tonnes, compared to 62.4 tonnes bought in the first quarter.
"We see that ETF investors haven't sold very much, and hedge funds are loading up for optionality for higher prices," he said. "The $4,000 level looks like a good spot for gold."
Minter also urged investors not to overreact to Federal Reserve Chair Kevin Warsh's hawkish messaging.
Although many market participants have interpreted Warsh's emphasis on price stability as a sign that interest rates could remain elevated for longer, Minter argued that the Fed chairman is attempting to establish credibility while allowing the central bank's newly created policy task forces time to complete their work.
"He has to come out and sound a little bit hawkish, but I think he's trying to respect the process,” he said.
Minter added that investors should pay more attention to how gold performs in response to Warsh's comments than to the comments themselves.
"After those announcements, the value of the dollar fell," he said. "That's validation that gold investors are on the right track."
Higher rates matter less than investors think
Minter also argued that interest rates have become a less important driver for gold than they have been historically because the central bank only has so much room to push rates.
He acknowledged that dramatically higher interest rates or another sharp spike in oil prices could pressure gold. However, he described those scenarios as low-probability outcomes.
"I don't see anyone predicting dramatically higher interest rates," he said, adding that a standard 25-basis-point increase would have little impact on broader investment flows. "Twenty-five basis points is certainly not dramatic."
For Minter, the bigger story remains the continued deterioration in government finances across the developed world.
"There is still nothing anywhere, any major political party in developed countries, that has a way to address the growing debt burden," he said.
As long as debt continues to grow and central banks keep accumulating bullion, Minter believes investors should view gold's consolidation near $4,000 not as a warning sign, but as an increasingly attractive opportunity to build long-term positions.
