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Despite Gold’s Highs, Wall Street Thinks It Has Further To Go
(CTN News) – Prices for gold increased in Tuesday’s session after hitting new highs in the previous two sessions – with analysts expecting the trend to continue through the second half of the year.
For the first time on Monday, the gold contract for April closed above $2,100 per ounce, and was up 0.37% at $2,134.2 by 1:15 p.m. local time. Market watchers point out that spot gold was trading at $2,129, up 0.7% from the previous day, despite the fact that in real terms, adjusted for inflation,
Gold is well below previous highs.
According to Citi analysts, there is a 25% probability of gold reaching a record $2,300 per ounce in the second half of the year. Nevertheless, their base case remains $2,150, and they reiterate their “wildcard” call for the trade to reach $3,000 over the next 12 to 16 months.
Gold has been described as a “recession hedge” for developed markets, and Citi is increasingly expecting a tailwind to be generated by the uncertainty surrounding the U.S. election.
Additionally, Berenberg analysts noted Monday that a Donald Trump victory would provide a “major positive” for gold, as volatility caused by ongoing conflicts in Ukraine and Gaza would support the safe-haven asset.
Accordingly, they believe gold-linked stocks have recently “disconnected from the underlying commodity” in spite of recent near-record prices.
Specifically, this is related to better-than-expected economic performance in the U.S., as well as a persistently hawkish stance on monetary policy on the part of the Fed.
There is generally a correlation between higher interest rates and a decline in prices as higher-yielding assets become more attractive, with the recent price rally driven both by expectations that the Federal Reserve will cut rates in late 2023 and in recent days.
In times of economic stress, bullion can also be seen as a safe haven. When yields are suppressed by aggressive monetary policy – such as rate cuts and stimulus – the non-yielding asset is considered a solid investment. Recent gains were attributed to firmer bets on a Fed rate cut in June.
Market pricing suggests that a 25 basis point cut will be made in June by 55%, according to CME’s FedWatch tool.
In the months ahead, we expect gold prices to remain volatile as the market reacts to macroeconomic factors and geopolitical events, according to ING strategists.
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