Investment advisor Adrian Day warns gold prices will collapse if Fed raises rates by 100bps

Adrian Day, the President of Adrian Day Asset Management and the portfolio manager of the Euro Pacific gold fund, has suggested that Federal Reserve (Fed) policies are likely to negatively impact the price of gold.  

Speaking during an interview with Kitco News on September 19, Day stated that if the Fed raises the interest rate by 100 basis points to control inflation, the value of the precious metal will likely collapse. According to Day, raising the rate by 100 basis points remains a possibility noting that going back to 50bps is not an option. 

However, the portfolio manager pointed out that the chances of implementing a 100bp have cooled off after the disappointing August inflation data. In this line, perceptions have shifted, and the markets are projecting a low possibility of going towards 100bps with 75bps remaining an option. 

“I think they’re likely to do 75bps, frankly; that’s what Jerome Powell has telegraphed. <…> One thing we know for sure; if it’s not 75bps, it’s going to be 100bps, it’s not going to be 50bps. So and that’s why obviously, you know, gold has collapsed and everything else. <…> If you get 75bps, gold is unlikely to go down more of a stock market is unlikely to go down more, and I mean to go down more on that news. 100bps would be different, I think gold collapses again on that news,” said Day.

Possibility of gold surging

At the same, Day pointed out that the gold market is reflecting investor expectation for inflation, noting that there is the belief the Fed is likely to continue raising interest rates to tame inflation. 

Furthermore, Day suggested that gold is likely to surge if the dollar weakens and the realization that the Federal Reserve will not be able to lower inflation to about 2.6%. He projected that interest rates are likely to continue rising to the point of going into recession without bringing down inflation.

On gold price projection, Day stated that the precious metal is unlikely to surge past the $2,000 mark by the end of this year. 

However, he pointed out that gold is under-invested at the moment, and once investors realize rate hikes won’t solve inflation, the metal will potentially surge past $2,000 in 2023. 

Notably, gold is considered the perennial hedge against inflation, but some analysts have suggested that Bitcoin (BTC) might take over the status. For instance, former MicroStrategy (NASDAQ: MSTR) CEO Michael Saylor believes that gold would likely experience demonization triggered by Bitcoin’s growth. 

It is worth noting that further interest hikes will likely impact Bitcoin, considering the growing correlation between equities and the cryptocurrency sector. The flagship cryptocurrency is battling to trade past the $20,000 level, and any hikes might plunge its value to new yearly lows.

Watch the full interview below:

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