Weakness in the US dollar helped gold prices rise to record levels in the last month of 2023. Thus, gold settled above $2,000 and continues to remain so. However, currency analysts at HSBC are not very hopeful for the yellow metal. Analysts warn investors that this level may not hold in the new year.
HSBC analysts: Gold price may take a step back!
cryptokoin.comAs you follow from , gold managed to maintain its place in the first two weeks of 2024. However, HSBC’s precious metals team says the market is overstretched. Therefore, they predict that high prices will negatively affect physical demand and reduce sales of jewelry and bullion. At the same time, the bank’s foreign exchange analysts expect to see renewed momentum in the US dollar. Therefore, this will put pressure on prices. The biggest driver for the dollar continues to be the Federal Reserve’s restrictive monetary policy.
Currency analysts say markets may be too aggressive in pricing expected interest rate cuts this year. If the market proves to be too optimistic about easing, this could provide new bullish momentum for the US dollar. In this context, analysts make the following assessment for the gold price:
Market expectations for a 138 basis point rate cut by the Fed are well above what the Fed’s dot chart implies and our economists’ forecasts for a 75 basis point cut. If the scale of these expected reductions does not fully materialize, the gold price may take a step back.
““It is possible that positive real interest rates will be a headwind for gold this year.”
HSBC analysts also say several rate cuts this year will support higher real interest rates. They also note that it would create another headwind for the precious metal. In the HSBC report, analysts underline the following points:
While gold has historically been sensitive to US real interest rates and there has been a significant break in this relationship, our precious metals analyst thinks positive real interest rates could be a headwind for gold this year.
HSBC sees a downside cap for the shiny metal!
So far, markets haven’t given up on the idea that the Fed will start cutting rates in March, even as inflation pressures remain stubbornly high. HSBC’s report was released ahead of the December Consumer Price Index, which showed core consumer prices in the US rising 3.9% over the past 12 months, higher than expected. Despite persistent inflation, markets give a more than 68% chance of a rate cut at the March meeting. The gold price is likely to experience some selling pressure over the next few months. However, HSBC sees a limit to the downside. In this regard, analysts draw attention to the following levels:
A number of fundamental factors will still keep the gold price at a historically high level. For example, geopolitical and trade risks are high and could remain high as 75 countries hold elections in 2024, providing key support to gold prices. Central bank demand remains historically strong, driven by geopolitical risks and portfolio diversification needs. However, it may not be fully sustainable at price levels above $2,000.
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