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Investing.com – The hawkish comments from officials and persistently high inflation prompted one of the major international banks to revise its outlook for the first half of the year.
In the latest research note on commodities analysts at Commerzbank, they said they cut their mid-year gold price forecast to $1,800 an ounce, down from the previous estimate of $1,850, as rising expectations continue to weigh on the precious metal.
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Premature hopes
Commerzbank said: “Hopes of an end to the rate hike cycle in the near future in the US turned out to be premature. Therefore, market participants are likely to proceed with caution.”
However, the most significant impact on the bank’s near-term bearish outlook for gold is rising bond yields, with some Fed members saying the central bank may have to continue aggressively raising interest rates to calm inflation.
On Thursday, the US PPI slowed but at a slower pace than last month, coming in at 6% y/y vs. 5.4% expected. Meanwhile, the Consumer Price Index (CPI) on Tuesday rose 6.4% for the year in January, beating expectations for a 6.2% rise.
Tight comments and hot inflation data pushed the 10-year yield to a four-month high of 3.9%. Markets are starting to price in a potential 50 basis point rally from the Federal Reserve next month.
Due to changing market expectations, the bank’s analysts now see the US federal funds rate peaking at 5.5%.
Shifting interest rate expectations also sent the US dollar higher, creating another headwind for gold. While off its highs, the US Dollar Index is currently trading above 104 points, its highest level since late December.
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Optimism despite negative expectations
Although the Deutsche Bank sees gold prices falling in the near term, analysts remain optimistic that growing recession fears will eventually support gold prices by the end of the year.
A lasting recovery should follow in the second half of the year, after which the US economy is likely to see a downturn that is likely to lead to renewed expectations of rate cuts. So we are sticking to our year-end forecast of $1,950“.
Besides weaker investment demand for gold, due to higher interest rates, the bank said they are also looking for weaker physical demand, particularly from India, the main consumer of gold.
Analysts pointed out that India imported only 11 tons of gold in January, down 76% compared to last year’s imports.
“There are two main reasons for the apparent decline: For one, domestic gold prices rose to a record high in January, which is likely to deter Indian buyers, who tend to be very price sensitive. On the other hand, imports are likely to have been delayed because The Indian government was expected to reduce the import tax.” “This, in fact, did not happen,” the analysts said.
Commerzbank added that it will be important to see whether demand recovers in February in India.
Dollar and gold now
It recorded an increase during the current moments, to reach levels near $ 1846 an ounce, by 0.15%.
And futures contracts for the yellow metal also rose during these moments of today’s trading, at levels near $ 1855 an ounce, by 3%.
While it settled in the current moments at the levels of 103.7 points.
