Saxo Bank predicts surge in gold prices to surpass $2,000 level

Investing.com – As the market rebounds strongly from Tuesday’s drop to a two-month low, Saxo Bank expects gold to jump back above the 2000 level over the next few days.

Ole Hansen, Head of Commodities Strategy at Saxo Bank, said the three-week correction in gold is over and the market is on its way back to over $2,000 an ounce, despite weak commodity prices pointing to growing recession fears.

Hansen’s bullish forecast for gold comes as the Bloomberg Commodity Index is down 13% this year, led by copper and oil. Meanwhile, it is up about 6.8% this year, with gold trading today at $1,995 an ounce.

Last April, when gold was trading around $2,000, Hansen predicted that gold prices would reach $3,000. He attributed this rise to central banks’ demands for gold that are still strong, and that inflation is still high and far from the required low levels, which is in favor of gold’s rise.

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What drives prices?

Hansen said that although weak commodity prices could ease inflation pressures in the near term, renewed safe-haven demand is still driving gold prices higher.

“Commodities are struggling due to the gloomy economic outlook. If the economy is as bad as commodity pricing, the Fed cannot raise interest rates indefinitely, and therefore, gold prices could easily return to $2,000 an ounce. However, a return above $2,000 could pay Prices to go up further.”

Although gold prices have struggled to hold on to gains in the past three weeks, Hansen said a correction was inevitable. He added that gold investors were out of sync with the Federal Reserve because they were pricing in deep interest rate cuts by the end of the summer.

Recession supports gold

Hansen added that gold’s drop to a two-month low brought the market back where it was with interest rate expectations; However, he also added that the idea of ​​cutting interest rates before the end of the year remains a strong possibility, especially if the global economy falls into recession.

“If the world falls into a recession, the Fed will react quickly and cut interest rates aggressively, and that means the reward for risk has tilted back slightly towards favoring assets that benefit from lower interest rates,” he said.

He added that rising long-term inflation would eventually force the Federal Reserve to raise its inflation target to 3% or 4%, which would greatly affect real interest rates, supporting a long-term rally in the precious metal.

As for the broader commodity index, Hansen said that while prices have room to run, investors may want to start looking for bargains at these lower levels. He noted that prices below $70 are not sustainable in the long run.