Gold price is a cheap hedge as Fed can't control supply-side inflation pressures

- Today Gold is a Cheap Hedge

Gold last traded at $1,792 an ounce. Silver at $23.77 an ounce.

NEWS SUMMARY: Precious metal prices rose sharply Thursday on dovish Fed comments despite a firmer dollar. U.S. stocks traded mixed as investors digested the Federal Reserve's delay on raising interest rates.

Kitco--"The Federal Reserve is on the cusp of shifting its monetary policies, but it won't be enough to stop the growing inflation pressures, and it is only a matter of time before investors return to gold to protect their wealth, according to one market strategist.

As the Federal Reserve starts its two-day monetary policy meeting, expectations are growing that the central bank will reduce its monthly bond purchases. At the same time, markets are pricing in a rate hike as early as June.

However, Robert Minter, director of investment strategy at abrdn (formerly Aberdeen Standard Investments), said, in a recent telephone interview with Kitco News that the new hawkish tones in the Federal Reserve won't be able to stop inflation from rising.

'Tighter monetary policies won't solve the backlog in the Ports; it won't bring new microchips online,' he said. 'All they are going to do is create a new hurdle to grow cap-ex when it is actually needed. Federal Reserve policies can't fix supply-side issues.'

Minter added that the ultimate risk is that rising inflation leads to stagflation as global consumption drops.

'The ultimate sweet spot for gold is stagflation because you have higher inflation and a lower U.S. dollar,' he said. 'Right now, investors aren't quite convinced that stagflation is the scenario that plays out going forward but could quickly change. You certainly cannot take stagflation out of the realm of possibilities.'

Looking at the gold market, Minter said that he expects it's only a matter of time before the current price attract investors looking for protection and value.

'If you look at where real yields are right now, it looks like gold prices should be closer to $1,900 than $1,800 an ounce. Gold right now looks cheap to us,' he said."