Gold prices could rally to record highs as the pressure on interest rates eases
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Gold prices can rally towards record highs of over $2000 per ounce during the year. However, the recovery towards these levels will not be smooth as some turbulence could be witnessed when the US Federal Reserve starts slowing down the pace of interest rate hikes.
Gold prices appear ready for a rally to record highs
The spot price for gold has increased past the $1,900 level, with the precious metal gaining by around 18% since early November. Gold’s price has been rising steadily as the inflation pressure eases, and the market anticipates that the Federal Reserve will be less aggressive with its monetary policy.
The Fed raised interest rates aggressively last year to tame the high inflation levels. The monetary tightening policy affected gold prices, which dropped from $2,069 in March to $1,613 in September.
The high interest rates also accelerated bond returns and made non-yielding gold less desirable to financial investors. On the other hand, the US dollar strengthened and reached its highest value in 20 years. A strong dollar led to dollar-priced gold being expensive to buyers.
However, the easing interest rates are weakening the US currency and bond yields. According to analysts at Bank of America, these factors could propel gold past $2000 per ounce in the coming months.
The dropping pressure from the US dollar and bonds could result in investors purchasing the metal to hedge against inflation and economic uncertainty. Analysts anticipate that the price of gold could easily go above $2,100 per ounce by the end of the year.
Gold has been seen as a hedge against inflation and an ideal store of wealth over the years. The growing concerns about an economic recession this year could turn more investors towards gold.
The investors that were expecting gold prices to plunge are currently holding a net long position in COMEX futures worth around $16 billion. This is equivalent to 8.3 million ounces of gold. These investors could help the price to rally.
On the other hand, central banks are expected to continue to stockpile gold after purchasing more of the metal in the first nine months of 2022. According to the World Gold Council, this was the highest level in half a century.
China could spearhead gold’s price recovery
The reopening of China’s economy could also boost the retail demand for coins and gold bars. China is the largest consumer market globally, and the economic growth in the country could translate into gains for gold.
However, analysts also predict that in the short term, gold’s price could correct lower. The Bank of America opined that if the prices drop from the current levels to below $1,800, they could drop to $1,730.
