Industry analysts are predicting gold prices may rise to record highs above $2,000 per ounce this year, as the Federal Reserve slows the pace of rate hikes before stopping them completely, marking a new golden era for the precious metal investor.
Since early November, spot prices have been seen to shoot over $1,900 per ounce, gaining 18%, as the markets see inflationary pressures diminish, and investors begin to assume that the Federal Reserve will begin toning down the aggressiveness of its monetary policy.
Gold prices were pummeled by the Federal Reserve’s aggressive series of rate hikes last year, hitting lows of $1,613.60 in September, compared to a March high of $2,069.89, itself just shy of a record peak in 2020.
As rates increased, so did the yields on bonds, which made non-yielding investments like gold less attractive to financial investors. Additionally, as the dollar rose to its strongest position in 20 years, dollar-priced gold became costlier for many buyers all over the world, driving down demand.
Now analysts at Bank of America say that as the US currency weakens, and bond yields fall, it “will become macro tailwinds for the yellow metal, pushing gold above $2,000/oz in the coming months.”
With the dollar and bonds offering less pressure, investors will be much more likely to move into bullion to hedge against inflation and the coming economic turbulence as the global economy slows, and maybe tips into recession, according to WisdomTree analyst Nitesh Shah, who says the precious metal could head above $2,100 per ounce by year’s end.
Shah noted gold has traditionally been seen as a safe place to store wealth during market downturns, and presently, “The risk of central banks overdoing it and pushing their economies into recession is high.”
Meanwhile, speculators who bet on the price of gold falling in November, built up a net-long position in COMEX futures consisting of 8.3 million ounces of gold with a valuation of $16 billion, pushing up prices.
According to the World Gold Council, in the first nine months of 2022, central banks bought more of the precious metal than they had in any previous year in the last 50 years, and analysts expect, given the prevailing conditions, they will continue to stockpile bullion.
Analysts at ANZ are noting that in addition, retail demand for gold bars and coins should remain strong, as China, the biggest consumer market for gold in the world, sees a revival of its economy.
However some analysts say it is too early to call the run on gold, as it may have jumped to high, too fast in the immediate term, and need to correct some. Bank of America analysts noted, “Should prices fall from current levels to the $1,870–1,900 an ounce range, we expect the (upward) trend to reverse,” the bank said. It added, if gold were to fall below $1,800, it could drop to $1,730.
