In a recent discussion with Kitco News, Kristina Hooper, the Chief Global Market Strategist at Invesco, shared her insights on the current economic landscape in the United States and its implications for the gold market. Hooper expressed skepticism about the Federal Reserve’s optimistic outlook for a smooth economic transition, suggesting that the U.S. is more likely to experience a turbulent economic phase that could prompt the central bank to reduce interest rates sooner than anticipated.

Hooper pointed out that although the U.S. economy has shown resilience and the job market remains strong, there are emerging signs of vulnerability. She questioned the likelihood of a smooth economic transition, labeling it as potentially unrealistic.

One of the key factors supporting the gold market, according to Hooper, is the growing issue of the U.S. deficit. She argued that the increasing national debt restricts the Federal Reserve’s options in terms of monetary policy, especially after its recent decision to keep interest rates unchanged. Hooper stated that it’s evident the Federal Reserve has ceased its interest rate hikes for the time being.

As Neils Christensen correctly notes in his report for Kitco News, despite the Federal Reserve’s halt on raising interest rates, other economic indicators are less favorable for gold. He also mentions that the yield on 10-year U.S. Treasury notes has surged past 4.5%, and the U.S. dollar index has climbed above 105 points and that these developments have led to a decrease in gold prices, with December gold futures last recorded at $1,936.30 an ounce, marking a 0.48% drop for the day.

However, Hooper remains optimistic about gold’s long-term prospects. She believes that the looming possibility of a U.S. government shutdown could trigger short-term demand for gold as a safe-haven asset. The U.S. Congress has so far failed to pass any funding legislation, raising the likelihood of a government shutdown at the start of the fiscal year on 1 October 2023. While such a shutdown wouldn’t directly affect the U.S.’s sovereign debt, it would have implications for domestic operations, including the furloughing of government employees.

The duration of the government shutdown, if it occurs, will determine its economic impact, Hooper noted. She emphasized that a shutdown would draw further attention to the U.S.’s escalating debt issues, potentially shaking investor confidence. This, in turn, could serve as a positive catalyst for gold.

Despite the lackluster performance of gold so far this year, Hooper sees a clear path for the precious metal to regain its value, potentially reaching $2,000 an ounce. She concluded that as concerns about the U.S.’s growing debt problems intensify, new opportunities for gold to gain momentum are emerging.

Featured Image via Midjourney