With the US Federal Reserve’s rate hike cycle about to end and global financial instability continuing to rise, gold prices are likely to move towards an all-time high of $2,075 per ounce (oz) in the coming months, according to research firm BMI.
There is, however, significant resistance around that level, as the US dollar remains strong, the report added.
For 2023, BMI forecasts the price of gold at 1,950/oz. Prices have averaged $1,935/oz in the year-to-date, with the current level at $1,955/oz as of mid-June.
“We have been neutral to bullish towards gold prices since Q4 2022, and remain so for the months ahead.”
Factors that will drive gold price higher include the following:
Peaking of bond yields: Falling real bond yields, and a significant drop in rates expectations will continue to support this non-yielding asset, the report said. BMI believes there is unlikely to be more than one additional 25-basis-point (bps) hike that will take the funds rate to a terminal rate of 5.50% in July 2023. “This will keep gold prices elevated in 2023 and 2024.”
Weakening US dollar: The US dollar has weakened significantly since late 2022, driven by the expectation that the Fed’s hiking cycle is close to an end and other currencies, such as the euro and pound sterling, seeing a relative improvement in their fundamentals. “We believe that the Fed’s hawkishness is the key driver of the US dollar, and dollar strength will start to fade as we get closer to the terminal rate. This will support interest in gold.”
Recession Fears: The BMI team expects that global real GDP growth will slow from 3.1% in 2022 to 2.1% in 2023. Amid such a clouded global backdrop, investor interest in gold’s safe-haven status will remain strong.
Geopolitical risks: BMI is of the view that fighting in the Russia–Ukraine war will continue until at least H2 of 2023. Elsewhere, tensions between Washington and Beijing will increase in 2023 in response to US government policies. “This will keep investor interest in gold elevated as investors seek safety.”
On the other hand, factors like an easing of inflation rates and the acceleration of China’s GDP growth to 5.2% in 2023 will form resistance for gold at $2,075/oz, said BMI.
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