Gold prices are trading near their highest level since June at just under $1,900 an ounce; but one research firm said that at some point geopolitical uncertainty will lead to bearish fundamentals. In a report released Monday, analysts at Capital Economics reiterated their negative stance on the precious metal. He still thinks the price will drop to $1,600 an ounce by the end of the year. cryptocoin.com We convey the details as…
Could the precious metal suffer a decline?
The comments came as escalating geopolitical tensions between Russia and the US created new safe-haven demand for gold, pushing prices above $1,900 an ounce. But Oliver Allen, a market economist at the UK-based research firm, said it’s only a matter of time before the Fed raises interest rates, pushing the precious metal down. Allen noted that in the first two months of 2022, gold prices increased by about 4 percent. At the same time, 10-year Treasury Inflation-Protected Securities (TIPS) yields rose by around 60 basis points. Allen used the following statements:
So far this year, the main factor creating the difference between real returns and gold price has been the safe haven demand for precious metals due to geopolitical tensions involving Russia and Ukraine. If current tensions persist or a direct conflict arises, gold will likely continue to receive some support from safe-haven demand, but we think gold will fall back if tensions subside.
Allen: Gold price weak in short to medium term
Allen said he expects his company’s real yields to continue to rise as the Federal Reserve tries to raise interest rates and shrink its balance sheet before the end of the year. In addition to geopolitical uncertainty, another factor that could challenge Capital Economics’ outlook is rising inflationary pressures. Recent data showed consumer prices rose 7.5 percent year-on-year in January, marking a 40-year high. The analyst said:
We think inflation in the US will ease significantly during this year. Historical records show us that inflation alone is not enough to raise the price of gold. The general price level and the price of gold in the short and medium term are weak. Even if it has definitely managed to hold its value over longer periods of time.
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