Despite an impressive start to October, banks continue to lower their year-end gold price forecasts. Commerzbank cut its forecast by another $100 amid rising Fed rate hike expectations. Erste Bank, on the other hand, predicts that gold will settle around $1,700 in the fourth quarter.
“Gold is unlikely to open the door for significant gains”
Commerzbank expects gold to close the year at $1,700 after cutting its August forecast from $2,000 to $1,800. The main reason for this lack of optimism is a more aggressive Federal Reserve projection that will keep the US dollar high and gold under heavy pressure. The bank predicts the Fed will raise another 175 basis points in tightening cycles before the pause. Commerzbank analyst Carsten Fritsch comments:
Our economists expect the Fed to raise rates to 5% by the spring of 2023. In other words, it will increase 175 basis points from its current level. Therefore, the US dollar will likely remain strong for a while. Our currency strategists predict that the EUR-USD pair will remain significantly lower in the coming months. However, it believes it will rebound in the second quarter of 2023.
For gold, this means the rest of 2022 is unlikely to open the door for significant gains. Commerzbank also lowered its expectations for next year. Fritsch comments on the issue as follows:
The headwind against gold will therefore continue for a considerable period of time. Therefore, we revised down our gold price forecast for the end of this year to $1,700 (previously $1,800). The significantly higher interest rate forecast and the lower forecast for EUR-USD also translates into a lower path for the gold price next year. We expect gold to climb to $1,800 (previously $1,900) by the end of 2023.
Commerzbank: Gold price rally won’t last long
The bank’s downgrade comes as many banks downgrade their forecasts, citing a hawkish Fed, a strong dollar and higher yields. Demand for precious metals fell despite inflationary pressures and geopolitical risks. Gold’s losses for the sixth consecutive month from April to September surprised analysts. Carsten Fritsch explains:
Last month, and the quarter that just ended, has been extremely difficult for gold. September ended with a 3% loss for gold. This was already the sixth month in a row. The last time he experienced such a losing streak was four years ago. Gold posted an 8% loss in the third quarter, the biggest since the first quarter of 2021. The gold price, which was $ 1,615, recorded the lowest level in 2.5 years at the end of September.
cryptocoin.comAs you follow, gold experienced a strong comeback this week. It rose confidently above $1,700 this week. However, it is now trading around $1,700 again. December Comes gold futures traded at $1,721.10, up nearly $50 on the week. However, Commerzbank does not think this rally will last very long given the outlook for the Fed and the dollar. Fritsch deals with the basis of this idea as follows:
The dollar has risen to its highest level in more than 20 years on a trade-heavy basis. It also pushed the euro well below par for the first time in two decades. The massive appreciation of the dollar has put a heavy weight on gold. Also, bond yields rose sharply. This, in turn, increased the opportunity costs of holding non-interest-bearing gold. For the first time in 12.5 years, yields on ten-year US Treasuries rose to 4% at the end of September.
“Gold may rise after Fed’s first quarter of 2023”
The same rate hike is expected in November, after the Fed raised 75 basis points in a row for the third time in September. However, according to Fritsch, gold will start to rise after the Fed walks. In this context, the analyst shares his prediction:
The easing of the US dollar over the next year signals that the gold price will rise again. This is because the Fed is unlikely to raise interest rates any further after the first quarter of 2023. It should also drop it again for the first time at the end of next year.
“The uncertain economic environment supports the gold price”
Gold price fell 8.3% in the third quarter, bringing the year-to-date loss to -9.0%. Still, strategists at Erste Group Research expect gold to stabilize around $1,700 next quarter. Strategists explain their predictions as follows:
Strong USD and rising US Fed funds rate and yields are a negative factor for gold price performance. However, the global slowdown in economic growth and falling earnings growth among companies should support demand for gold in the medium term. High geopolitical risks also remain an important factor. This facilitates a positive performance. We expect the price to rise to around $1,700 in the fourth quarter.
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