In its latest note, the Australian and New Zealand Banking Group (ANZ) says that gold’s position above $2,000 is likely to become more permanent over the next 12 months. And in case of any deterioration in financial conditions, gold prices could go towards $2,100.
Gold prices may drop slightly before rising
The precious metal is in an awkward position. The Federal Reserve is likely to raise interest rates another 50 basis points before July, which will put pressure on prices in the short term. At the same time, the risks associated with tightening financial conditions and further banking turmoil could push prices to new record highs. ANZ makes the following assessment:
Increased risk of recession may encourage more strategic investment under stock market volatility and geopolitical tensions. The turning point for the market could be a pause in US rate hikes. While we believe the Federal Reserve will raise another 50 basis points by June, it may give up some risk premium in the short term before gold prices rise again.
This development could open the door to $2,100!
Gold will remain in a bullish trend as long as it trades above $1,900. ANZ’s commodity strategists Daniel Hynes and Soni Kumari expect prices to find close support around $1,950. According to strategists, the next trendline support after this breaks lies at $1,900. In this context, strategists point to the following level:
Any deterioration in the financial turmoil could push gold above its recent high of $2,100.
Such a scenario indicates higher gold prices.
cryptocoin.comAs you follow, last week, gold rose as high as $2,050 after stronger-than-expected US core CPI figures. And so far, any sell-off just below the $2,000 level has found solid support. ANZ thinks the Fed will pause in the second half of this year and potentially cut rates amid rising recession risks. Hynes and Kumari explain this situation as follows:
The reversal of the US yield curve has steepened recently, historically followed by rate cuts with a lag of three to six months. Such a scenario normally bodes well for higher gold prices.
US dollar outlook currently favors precious metal
Also, the outlook for the US dollar, which is generally a strong gold driver, is currently in favor of the precious metal. “We believe the US economy is underperforming compared to other major economies, which leaves more downside for the USD,” ANZ adds. On top of that, there is room for gold to rise even higher on the institutional demand side. ANZ supports this view as follows:
Gold ETF flows turned positive in March and speculative net-long positions are on the rise. Even so, investor holdings are low, leaving room for savings. This can offset any weakness in physical demand caused by higher prices. Global ETF holdings rose 32 tons to 3,444 tons in March, after ten consecutive months of exits. Despite this, global ETF holdings decreased by 28 tons in the first quarter of 2023.
ANZ’s year-end gold price forecast: $2,050
The bank’s year-end gold price forecast is $2,050, and the risk is on the upside. ANZ states that the effect of the Fed’s aggressive tightening is finally starting to surface, and explains:
Economic activity slows, US ISM Manufacturing contracted for the fifth consecutive month to 46.3. Indeed, the Conference Board Leading Indicator also indicates that a recession is approaching. The Fed’s rate hike trajectory is driven by US CPI inflation and labor data, which are showing signs of easing.
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