Daniel Pavilonis, senior commodities broker at RJO Futures, said that if the Federal Reserve restarts its rate-cutting cycle on Wednesday, the combination of a weaker dollar, rising consumer inflation and supply shortages caused by tariffs could lead to an economic situation similar to that of the 1970s - by the end of the year, not only gold but also silver, platinum and palladium will hit record highs.



Before the Federal Reserve's interest rate decision was announced this week, Pavilonis said the Fed had little choice but to meet market expectations and implement a rate cut.

"I think the consumer confidence index, the University of Michigan consumer confidence index and all the economic data are reflecting the fact that inflation is mixed and that the labor market indicators are weakening," he said. "Given the Fed's dual mandate, they have to support the labor market."

“The Fed’s pattern since the Bernanke era has been to basically guide the market in understanding its expectations,” Pavilonis said. “Now the Fed has essentially been forced to cut rates, and at this point they can’t back off — the revision to the labor force data is so bad.”

President Trump, in a post on the Truth Social platform on Monday, called on the Federal Reserve to slash interest rates before the September Federal Open Market Committee (FOMC) meeting. He wrote: "'Too Late' - Rates must be cut immediately and much deeper than originally thought. This will allow the Housing Market to soar!!!"

But Pavilonis doesn't expect the Fed to exceed market expectations on interest rates. "I don't think we're going to see a 50 basis point rate cut or something like that," he said. "I think it's more likely to be a series of rate cuts, three by the end of the year."

He said the gold price movement reflects the general market consensus on the direction of the economy - that inflation will pick up again.

He explained, “The gold market sees the current environment as one where inflation is still sticky: now we are supporting the labor market by cutting interest rates, and this may have a ‘bullwhip effect’ and trigger a new wave of inflation in the future. I think both central banks and ordinary people are looking to gold as the ultimate hedge against inflation.”

The other side of the inflation problem is the debt spiral, Pavlonis said.

"Historically, the only way for governments to get rid of massive debts is to dilute them through inflation, and that's been the way the economy has worked for decades," he said. "I think that's another layer to what's happening: central banks are realizing they have to increase their gold holdings to hedge against risk, and ordinary people are also looking for hedges. I think that's what's happening in the market right now."

Pavilonis said the current economic environment is reminiscent of the inflationary economies during the Nixon and Carter administrations, which is why he is bullish on commodities overall.

“I think we’re seeing a repeat of the 1970s – gold has obviously become one of the most valuable commodities as a store of wealth due to inflation protection, but I think other metals will now start to catch up,” he said. “Palladium looks like a great buy, platinum is moving higher, and silver could break through $50.”

Mr. Pavilonis noted that even as parts of the economy weaken, the most successful tech companies are making massive investments not only in new data centers but also in chip factories and other industrial-scale technology projects — all of which require large and stable supplies of metals.

"Take palladium, for example," he said. "More than 40% of palladium comes from Russia. Where can the United States get this metal? We have long outsourced mining and other related industries to other countries. Now, with the impact of tariffs, we have to produce a lot of this metal ourselves. I think this exacerbates the 'bullwhip effect': there is demand for metals, but we can't meet the supply. This situation will continue."

Pavilonis believes another trend from the 1970s – private capital investing in large government projects – could also return.

"We saw this in the 1970s: because of high interest rates and high government debt in many projects in the U.S. and around the world, they needed to bring in private investment through pension funds, 401K plans (U.S. retirement savings plans) and mutual funds. That's how infrastructure projects were financed at the time," he said. "I think we're likely to see more of this in the future. Take Chicago, for example. The city needs new infrastructure like bridges and roads, but it's already heavily in debt."

Pavilonis said these public-private partnerships could take many forms. "For example, municipalities could issue bonds and private equity firms could buy them," he said. "I think more and more projects will be advanced this way. This will undoubtedly drive demand, and infrastructure projects are likely to be another source of demand growth for many metals."

He said the impetus for such investment could also come from the supply side.

“Look at how much money is sitting idle in money market funds,” Pavilonis said. “That money needs to go somewhere: to get a yield but also to some extent away from risky assets like the stock market. Bonds issued for infrastructure projects could potentially create a lot of jobs and drive infrastructure upgrades, which would drive demand for copper and other industrial metals.”

“Ultimately, I think this is going to be a big driver going forward, especially as the job market continues to weaken and needs to rebound, and infrastructure projects are where you get a lot of jobs,” Pavlonis said.

All of these factors combine to create a "perfect storm" that supports the precious metals sector, and Pavilonis expects precious metals prices to soon reflect this trend.

“I think gold will hit $4,000 an ounce by the end of the year, maybe even higher, and silver will break through $50 an ounce. Regarding platinum and palladium, palladium may lag a little bit, but both will be around $1,800 an ounce by the end of the year,” Pavlonis said.