Forecasts for gold prices continue to come. Ole Hansen, head of commodity strategy at Saxo Bank, states that the three-week correction of gold is over. He also emphasizes that weak commodity prices point to rising recession fears. Despite that, he said the market is on track to rise above $2,000 an ounce.
Uptrend for gold prices
Hansen states that weak commodity prices will reduce inflation pressures in the short term. But he said safe-haven demand remains a healthy driver for gold prices. Highlights are as follows:
“Commodities are struggling because of the economic outlook. If the economy is as bad as commodities are priced in, then the Federal Reserve cannot raise interest rates indefinitely. In this environment, gold prices could easily return to $2,000 an ounce. We are not out of danger yet. Breaking above $2,000 again will definitely increase sentiment.”
Although gold prices have struggled to hold their gains in the last three weeks, Hansen said a correction is inevitable. Hansen states that gold investors are pricing in significant interest rate cuts by the end of the summer. For this reason, he adds that the developments are incompatible with the Federal Reserve. He states that the decline of gold to the lowest level of the last two months has made the market in line with interest rate expectations. But he added that the idea of a rate cut before the end of the year remains a strong possibility, especially if the global economy falls into recession. He comments on this:
“If the world goes into a recession, the Federal Reserve will react quickly. It will aggressively lower interest rates. Basically, this means that the risk reward has once again returned slightly in favor of assets benefiting from lower interest rates.”
interest rate increase
Markets expect an increase in the monetary policy meeting in June. Accordingly, it sees more than 66% chance for a 25 basis point increase. Meanwhile, the markets also think that interest rates will fall to 5% by the end of the year. Hansen said that gold remains a long-term precious metals bull, with renewed bullish potential. He explained that as inflation continues to fall, it is unlikely to fall to the central bank’s target of 2%. It’s a fragmented world, with nations developing their own local supply chains. Accordingly, he added that this will keep broader commodity prices high in the long run. He thinks rising long-term inflation will force the Federal Reserve to raise its inflation target to 3% or 4%. He also emphasizes that this will greatly affect real interest rates. Ultimately, he said, these developments will support a long-term rally in the precious metal.
As for the broader commodity index, Hansen thinks differently. While there is room for prices to drop further, he said investors may want to start bargain hunting at these levels. Hansen pointed out that oil prices below $70 are not sustainable in the long run. An upcoming solution to the US debt ceiling will not end the country’s financial woes, according to a research firm. However, there is a significant benefit to the gold price. In a report released earlier this week, CrossBorder Capital analysts reiterated their call for gold prices to reach $3,000 as budget deficit spending in Western economies, led by the US, continues to rise. Analysts look beyond the current debt ceiling debate and say:
“If investors’ concerns about the often tense and protracted debate between the Treasury and Congress extend to a future failed Treasury auction, the US dollar will certainly slide. In this case, will gold prices rise? This is a significant risk. As a result, fiscal arithmetic, which deteriorates rapidly across advanced economies in general, threatens faster inflation.”
gold price prediction
Analysts said the gold price will remain an attractive investment asset as central banks will have to end quantitative tightening measures and become buyers of last resort to finance government spending. Citing data from the Congressional Budget Office (CBO), analysts focus on rising costs and declining revenues. For this reason, they state that the public debt, which was $24.3 in the 2022 fiscal year, will almost double by 2033. Expectations are for it to reach $46.4 trillion. At the same time, the size of the Federal Reserve’s balance sheet is expected to increase by 50% over the next ten years. In the worst-case scenario, the central bank’s balance sheet would increase by 75%.
cryptocoin.com Analysts use simple estimates. Accordingly, even with a 75% increase in US monetary inflation, the gold price will rally. In this case, the gold ounce price will rise to $3,000. CrossBorder states that in addition to being a hedge against inflation, gold continues to be attractive against the US dollar. Analysts say that the US budget deficit spending makes the US dollar an unattractive reserve currency. Accordingly, he says that in this case, central banks will continue to buy gold.
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