MUMBAI: A number of analysts on the Wall Street foresee the historic rally in gold prices to break more records—having already scaled to $2,420/ounce last Friday following reports of an imminent Iranian attack on Israel—with one of them pegging the rally touching the $2,700-mark by December as investors continue to rush to the best safe-haven asset as seek refuge.
They see the only respite if at all, will come if the greenback gains, as gold prices are inversely linked to the strength of the US currency along with major central banks pushing back from snapping up more gold as reserves. Another reason for the safe-haven rally is the slew of elections this year, including India, the US and England.
After losing ground following the stock market rally after the pandemic deep-cuts, gold lost ground in 2021 and 2022 but the Russian invasion of Ukraine in late February 2022 changed the course of the yellow metal and since then it has not looked back. After dipping to a low of $1,984/oz in mid-February, gold has steadily climbed almost without interruption and has since then gained almost 20%.
The immediate trigger for the past $2,420/ounce rally has been the hotter US inflation and other dataprints, reinforcing expectations of shallower rate cuts by the US Federal Reserve this year which will begin well after June.
Spot gold on the Chicago exchange eased 1.5%to $2,336.87/ounce last Friday, taking a breather after hitting a record high of $2,419.79. Given the rally and the mounting risk of an imminent skirmishes between Tehran and Tel Aviv has Goldman Sachs revising its outlook for the bullion to a historic $2,700/ounce by December.
Nicholas Snowdon, Lavinia Forcellese and Lina Thomas of Goldman Sachs attribute the fewer likely Fed rate cuts, stronger economic growth trends and record rally in equities for the gold rally which has already gained 20% since mid-February when it had fallen to under $1890.
“From the rebased price level, with these positive price factors still set to play out ahead of us, we upgrade our price forecast to $2,700/ounce by year-end as against $2,300/ounce previously,” they said in a weekend note citing the yellow metal’s bull market indifference to the usual macro factors.
James Steel, the chief precious metals analyst at HSBC Securities US, said gold is hitting record highs on geopolitical risks, financial uncertainties, higher stock valuations, and rate cut expectations in 2025 which all may keep the prices strong. Another reason is the record gold buying by central banks and China, the world’s largest consumer importing close to 350 tonnes in the first two months of 2024.
“The ongoing gold rally has been fueled by a powerful cocktail of safe-haven and hedge fund purchases, prompted by record-high equities and sticky inflation, triggering heavy momentum buying, though market sentiment is clearly bullish, and while the near-term upward trajectory shows no signs of slacking, we think prices are progressively overstretched,” Steel said.
“Accordingly we raise our average price forecasts across the board for 2024 at 2,500/ounce but lower price later in 2025 at around $1,975/oz,” he said, adding the dollar is set for big gains later this year which should contain gold.
According to Steel, gold is an asset without a yield, thus investors tend to find it more attractive in times of low and negative real interest rates. Gold is priced in dollars and thus generally moves inversely to the greenback and historically, the dollar levels have exerted a significant influence on gold. Another major reason, according to Steel, is the surging Chinese imports, which touched 818.3 tonnes in 2023, up 34%from 2022.
