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How High Can Gold Prices Go?

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Gold will continue to do well through the second half of the year even if equity markets continue their record drive from the March lows, according to one market strategist.

It has been a big week for the gold market as surging momentum has pushed priced to their highest level in nearly eight years. In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that he continues to expected gold to push higher through the rest of the year. Although his base case doesn’t call for $2,000 gold by year-end, he added that a move to that level is not out of the “realm of possibilities.”

In a world awash in uncertainty and volatility, gold has done exactly what it was supposed to do, he added.

“I’m really confident that we're going to see higher prices during the remainder of this year. How much higher is really the big question for us all to be thinking about right now.” he said.

Although some investors have been concerned that a record recovery in equity markets could take some momentum away from gold’s safe-haven appeal, Milling-Stanley said that investors shouldn’t fear equity markets. He noted that gold has held up well in the last few months as equities have bounced higher, highlighting its low correlation to other assets.

Milling-Stanley added that he is not convinced that the rally in equity markets is sustainable.

“What we've seen is an asymmetrical relationship develop. When the equity market is going up, gold can go up down or sideways. It's done all three at various different points over the 12 year period,” he said. “But every time the equity market is turned down, then gold, often after an initial downturn, has tended to go up.”

Driving the latest rally in the gold price is unprecedented investor demand for gold-backed exchange-traded funds (ETFs). Milling-Stanley said that a record $15 billion has flowed into SPDR Gold Shares (NYSE: GLD) so far this year. At the same time, a billion dollars has flowed into SPDR Gold Minishares (NYSE: GLDM). State Street is celebrating the two-year anniversary of low-cost ETF. In the past two years since its launch the ETF has seen its assets under management grow to more than $2 billion.

Milling-Stanley added that the low-cost gold ETF has changed the long-term investing landscape for the gold market.

“GLDM, I think, has quickly established itself as the leader in the low expense ratio space. No question about that, given that it's already the third largest. Gold backed ETF in the U.S.,” he said.

“Alongside GLD, the two products, coexisting, both growing, both contributing to the fact that we've seen phenomenal inflows into gold back ETFs in the U.S. year to date,” he added.

Milling-Stanley said that gold ETF is expected to remain strong through the rest of the year as central banks around the world continue to react to the economic devastation caused by the COVID-19 pandemic.

He added that investors should not expect to see the Federal Reserve raise interest anytime soon.

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