(Kitco News) – The era of free money is coming to an end as the Federal Reserve looks to tighten its monetary policy and reduce its balance sheet this year. According to one market strategist, investors want to hold something tangible in this environment.
In a recent telephone interview with Kitco News, Robert Minter, Director of ETF Investment Strategy at abrdn, previously known as Aberdeen Standard Investments, said with the Federal Reserve looking to tighten its monetary policy and reduce liquidity, risk and volatility have once again become fixtures in the marketplace.
He added that the tech sector and cryptocurrencies could struggle to attract investors’ capital in the current environment as these are seen as high risk. Investors should look at commodities that will protect against market risk and rising price pressures.
“It is time for investors to get rid of their ‘protons’ and buy something real that you wouldn’t want to drop on your foot,” he said.
Minter said his firm is bullish on industrial metal as the sector sees broad-based supply and demand imbalances. He explained that metals like copper continue to see dwindling supplies and growing demand as nations worldwide rebuild crumbling infrastructure.
Another metal abrdn is bullish on is palladium as the investment firm expects the current microchip supply issues to resolve and automakers quickly increase production to rebuild their dwindling supply.
Although the firm is relatively neutral on gold this year, Minter said that it is an important portfolio diversifier.
“Gold was the most disappointing commodity last year, but it still remains an important tactical asset for investors,” he said.
The Federal Reserve’s push to address the growing inflation threat remains the most significant factor driving gold and silver prices through 2022, said Minter.
Minter’s comment came as inflation in January rose to a new 40-year high, with the annual Consumer Price Index coming in at 7.5%. Markets are becoming more comfortable with a 50 basis-point move in March and seeing the potential for six rate hikes through the year.
Positive for gold, Minter said that market expectations are going to have to shift at some point. He added that the Federal Reserve won’t risk slowing down economic growth by overtightening monetary policy.
“The stock market and, to some extent, the bond market are pricing in awfully aggressive moves That are ultimately going to come off,” he said. “The question is just how big of a hole do we dig before these aggressive rate moves get reversed?”
Not only is the Fed looking to raise interest rates, but it has also laid the groundwork for reducing its balance sheet before the end of the year. Minter added that he doesn’t expect the central bank’s plan to deter gold investors that much.
“As long as there’s $28 trillion of federal debt and $9 trillion on the Fed’s balance sheet, it might be coming down at some point. It’s still an awful lot of money,” he said. “You need to protect yourself against mistakes and gold does that.”