Stubborn inflation pressures may lead to a continuation of the policy of raising prices during the summer, however, this will not prevent gold from continuing its strong rises during the coming period.
Persistent price pressures and sluggish economies around the world have pushed gold prices, adjusted for inflation, to levels in line with previous periods of market stress in the early 1980s, the European sovereign debt crisis, and Covid. The growing economic uncertainty should continue to support gold as a safe-haven asset until 2023.
Looking ahead, recessionary risks, along with the eventual peak in real interest rates, as well as a weaker US dollar should all continue to support gold demand, and the metal has the potential to trade higher for the rest of the year.
Markets are also starting to push back the timing of a potential rate cut until after the summer. Although core inflation has fallen sharply from last year’s peak, core inflation, which strips away volatile food and energy prices, has remained consistently high.
This means there is still little reason for the Fed to pause tightening for the time being, and next would be another 25bp hike at its meeting in May, and possibly an additional hike of the same size in June or July.
US interest rates are expected to peak at around 5.5% with the Consumer Price Index (CPI) at around 3% at the end of 2023, so the Fed will not cut rates until early 2024.
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World Bank report
In a world full of uncertainty, the World Bank said precious metals would continue to be an attractive asset. Analysts said they expect precious metals prices to rise 6% this year, outperforming the broader commodities market.
Despite the recent rally in platinum prices, analysts at the World Bank note that gold has led the sector, rising 9% in the first three months of the year. Analysts expect it to remain high, averaging around $1,900 an ounce for the year.
The World Bank said that safe-haven demand will continue to support gold through the rest of the year, even if the Federal Reserve maintains its aggressive monetary policies and other central banks continue to raise interest rates.
“Rate increases by central banks since 2022 have constrained gold prices by raising the opportunity cost of holding the metal. However, the recent divergence in movements in gold prices and the yield on 10-year Treasury Inflation Protected Securities (TIPS) indicates The effect of geopolitical and economic uncertainty on prices was stronger than the opportunity cost effect.
The World Bank said that the unprecedented demand of central banks may provide more impetus for gold this year.
Gold forecast for the coming period
It is looking to move to the 2,100 levels at the end of the year and then advance to $2,200 by the end of March 2024, according to UBS, which sees central bank purchases as the first driver of price hikes in the coming period.
The precious metal is among the best performing assets in 2023, up 9.2% year-to-date as prices trade around $2,000 an ounce. “The rally is far from over,” UBS said in a note on Wednesday.
UBS sees central banks’ strong gold buying activity to continue for another year. Although this type of demand does not usually directly affect prices, the record levels seen recently have an undeniable impact.
Meanwhile, with central banks continuing to buy gold, de-dollarization accelerating, and the Federal Reserve halting interest rate hikes, it only takes a few buyings from new investors to jump towards the $2,500 levels this year, according to Bank of America (NYSE). :).
Inflows into ETFs will be critical to whether or not price gains can be sustained,” a commodities analyst at Bank of America said in a note on Tuesday.
The bank believes that the cycle of keeping interest rates at high levels will end soon despite the rise in inflation, which indicates that real interest may become less of a headwind for gold, as described in the note.
2023-04-28 13:58:00
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