Adrian Day: Gold, the Fed, the US Economy — What's Next in 2023?

The US Federal Reserve's next meeting is approaching quickly — what will the central bank do and how will it affect gold?

Adrian Day, president of Adrian Day Asset Management, said there's less certainty about what the Fed will do compared to last year. However, in his view it's fairly clear that it wants to leave interest rates elevated, at least for now.

"I think the new message from the Fed obviously is higher for longer," he told the Investing News Network at the Prospectors & Developers Association of Canada (PDAC) convention. "I'm not sure we're going to see much in the way of higher rates, but they're going to keep repeating (that) those rates are going to stay high until the economy comes down."

That said, Day reminded market participants that the Fed has raised rates quite quickly. While the effects have been felt in rate-sensitive sectors like cars and housing, less sensitive industries have not yet seen the impact filter through.

"We've had interest rates in the US go from 0 to 4.5 percent in less than a year. That is a dramatic, dramatic rate of increase in interest rates. And in fact, it's a greater rate of increase than we saw under (former Fed Chair Paul) Volcker," he noted. "The impact of those rate increases we've already had has not yet been felt in the economy. It is really important that people understand that."

With those and other factors in mind, Day is negative on the US economy, but bullish on gold and gold stocks.

"I'm looking for a stagflationary environment. I'm thinking that what's going to happen is the economy is going to move into a recession before inflation is totally under control, so we're going to have persistent inflation — not necessarily 10, 12, 15 percent inflation — but persistent inflation with a sluggish economy. That's stagflation," he explained.

During stagflation, oil is typically the best performer, but gold and gold stocks are in the top five. Day also said investors shouldn't be concerned about gold and gold stocks in the case of a hard recession or continued inflation.

"On average, gold stocks are up by well into the double digits — by 25 percent, 28 percent — during inflations," Day said.

Watch the interview above for more of day's thoughts on the gold, as well as the Fed's next steps and the US economy. You can also click here for the Investing News Network's full PDAC playlist on YouTube.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.