Gold lowest since April 2020, expected to rally in coming months

Gold lowest since April 2020, expected to rally in coming months

Gold is currently trading at $1,650 per ounce.

Rising interest rates have pulled gold prices from a record high six months ago to their lowest level since April 2020, but analysts expect a rebound in the coming months as the rate moves at a slower pace.

Traditionally seen as a ‘safe-haven’ asset, after Russia sent troops to Ukraine in March, gold prices soared above $2,060 an ounce, triggering a confrontation with the West.

But sharp US monetary tightness has pushed the dollar to a 20-year high, making dollar-denominated gold expensive for many buyers. It also raised returns on government debt, making non-yielding gold less attractive.

Investors responded by selling. Gold is now trading at around $1,650 an ounce, down 20% from its March highs, and speculators in US gold futures are betting on an impending fall.

“US monetary policy is firmly in the driving seat,” said Carsten Menke, an analyst at Julius Baer.

If US interest rates rise to the 3.75% that markets expect in November, gold could drop to around $1,580, and if rates hit 5.5%, gold could slip to $1,285.

The technical picture is also bad. Tom Pelk, technical analyst and chief investment officer at Fortu Wealth, said gold is “closing in a descending channel” with support at $1,645 and beyond that at $1,606.

But analysts are waiting for when interest rates stop rising and begin to fall – something they say should deplete the US dollar, slash bond yields and help gold. .

Financial markets are pricing in a peak in the benchmark fed funds rate next year, and a possible cut in the second half of 2023.

“If gold prices go down, it is a buying opportunity,” Menke said, predicting that gold could rise to $1,900 next year.

Analysts at Citi said gold is likely to bottom out in September or October and should average $1,775 an ounce in the last quarter of this year and $1,870 in 2023.

Bank of America estimates that gold will average $2,100 in 2023.

There is also bullion in support of geopolitical instability following Russia’s attack on Ukraine and fears that high interest rates will destroy economic growth without stopping inflation – a situation known as stagflation.

Both these scenarios encourage investors to buy gold as a safe store of value.

Analysts at Australian bank ANZ said gold is currently trading above its ‘fair value’ at around $600 an ounce based on interest rates, consensus inflation expectations and dollar strength.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)


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