Many gold investors are fed up with the price action of gold so far this year as prices have dropped by about 5%. However, commodity analysts at Bank of America have a slightly more optimistic view of the precious metal.
“The gold market is currently taking the breakeven into account”
In a report released Monday, analysts say gold prices in the current environment are between 10% and 15% above market value. The comments came as gold regained momentum after bouncing from support at $1,700. Analysts make the following assessment:
In our view, the gold market is currently accounting for breakevens of well above 3%. All together, we can ensure that gold prices stabilize at just under $1,700 by the end of the year.
“Gold price falling below this range is not our baseline situation”
cryptocoin.comAs you can see, the US dollar and rising US interest rates continue to create strong headwinds for the precious metals market. However, Bank of America (BofA) analysts see solid ground for now. In this context, analysts make the following statement:
For gold to reach $1,500, nominal 10-year interest rates must reach 4%. That seems difficult against the backdrop of a slowing US economy. For gold to drop to the lower end of the range, recent investor liquidations and exits from ETFs will need to accelerate. This is not our base case. Our foreign exchange and interest teams expect the dollar’s strength to reverse and the nominal 10-year yield to decline next year, respectively.
“We expect gold to move up”
The comments come as the Federal Reserve tries to raise interest rates by 75 basis points later this month. BofA economists estimate that nominal interest rates will close the year between 4.00% and 4.25%. At the same time, he expects real interest rates to peak at 3% in the first half of 2023. Accordingly, it predicts that it will decrease to 2.50% by the end of next year. Also, analysts say that a peak in real interest rates will be positive for the precious metal. Analysts explain their views as follows:
The Fed is signaling a slowdown in the walking cycle. It is possible that it will eventually bring new buyers to the market. Our currency strategists also expect a weaker dollar. Therefore, we continue to expect gold to move up as we enter 2023.
“All monetary authorities increased their gold holdings”
BofA also looks at other factors that support the gold market. Analysts say they expect continued growth in central bank demand. The bank is seeing increasing demand from India and China, the world’s two largest gold markets. From this point of view, analysts underline the following points:
Remarkably, purchases were relatively broad-based. Monetary authorities in Turkey, Egypt, Iraq, India and Ireland all increased their holdings. These figures confirm that central banks remain conservative in an increasingly uncertain geopolitical environment. However, their share of around 20% in the total implied investment is often not enough alone to drive the rallies.
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