Demand from central banks and retail investors, geopolitical uncertainties, persistent inflation, and the anticipation of interest rate cuts support a positive outlook for gold in the second half of the year, experts have said. Gold prices are expected to benefit from the consistent demand from emerging markets, geopolitical tensions, and lower yields due to rate cut expectations.
Political Risk and Gold Prices
With more than 40 countries holding elections this year, political risk is a significant theme driving gold prices. This uncertainty, along with other factors, contributes to a positive outlook for the precious metal in the coming months.
Gold prices have recently entered a consolidation phase after reaching a record high of $2,449.89 on May 20. Despite headwinds such as a strong dollar and high interest rates, the metal continues to hold strong, trading at $2,300 on Thursday, showing resilience in the face of challenging market conditions.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, emphasized that robust demand from emerging markets, geopolitical tensions, and lower yields due to rate cut expectations have all fueled the appetite for gold this year. These factors are expected to continue supporting gold prices and could lead to further increases, especially leading up to the US elections later in the year.
Potential for $3,000 Gold
The Bank of America recently suggested that gold could reach $3,000 an ounce within the next 12 to 18 months, driven by investment demand. Central banks, in particular, have shown a growing interest in gold as a financial asset, leading to increased demand and positive price momentum.
Central banks’ gold purchases have been a significant driver of global demand, with countries diversifying their reserves and contributing to the rally in gold prices. Despite a temporary pause in China’s gold buying, the overall sentiment remains bullish, with expectations of continued support for gold prices.
Rising Gold Reserves
Central banks’ positive outlook for gold’s future share in reserve portfolios signifies a shift towards viewing gold as a valuable asset for risk management and diversification. Both emerging market and advanced economy central banks are increasingly recognizing gold’s role in their portfolios, indicating a sustained demand for the precious metal.
The increase in central banks’ gold reserves is driven by multiple factors, including its role as a long-term store of value, performance during crises, and portfolio diversification benefits. The continued rise in global central bank gold reserves is expected to support gold prices and maintain a positive outlook for the metal.
Factors Driving Gold’s Momentum
In addition to central bank purchases, geopolitical uncertainties, and strong retail demand in China, factors like rising debt-to-GDP ratios and persistent inflation contribute to gold’s appeal. Anticipated interest rate cuts are also poised to bolster gold prices by reducing the cost of holding the metal and signaling a weaker economy, further solidifying gold’s position as a safe-haven asset.
Despite temporary market fluctuations and subdued ETF investor interest, gold remains well-supported and is expected to reach around $2,500 later in the year. The overall market stability and sustained demand from various sectors indicate a positive trajectory for gold prices.
Potential Risks to Gold’s Trajectory
While the outlook for gold remains positive, potential risks include resolving geopolitical tensions peacefully, a halt in central bank gold purchases, and a significant shift in Fed policy towards rate hikes. These factors could impact gold’s momentum in the medium to long term, highlighting the need for continued monitoring of market conditions.
Updated: June 27, 2024, 5:05 AM
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