By Peter Hobson
Sep 23 – Rising interest rates have plunged gold prices from their record highs six months ago to their lowest since April 2020, but analysts expect a rebound in coming months as the rally slows of the types.
Traditionally considered a haven asset, gold prices soared above $2,060 an ounce in March after Russia sent troops into Ukraine, sparking a standoff with the West.
However, the rapid tightening of US monetary policy pushed the dollar to a 20-year high, making gold more expensive for many buyers. It also pushed up government bond yields, making non-interest-bearing bullion less attractive.
Investors responded by selling. Gold is now around $1,650 an ounce, down 20% from its March high, and US gold futures speculators are betting on further declines.
“US monetary policy is firmly in the driver’s seat,” Julius Baer analyst Carsten Menke said.
If US rates rise to 3.75%
something the markets expect in November gold could fall to about $1,580, Menke said, and if they hit 5.5%, it could plunge to $1,285.
The technical picture is also bleak. Gold is “locked in a descending channel” with support at $1,645 and beyond at $1,606, said Tom Pelc, technical analyst and chief investment officer at Fortu Wealth.
However, analysts expect rates to stop rising and start falling, which should deflate the dollar, lower bond yields and help gold.
Financial markets expect a spike in the Fed’s benchmark funds rate next year and possible cuts by the second half of 2023.
“If gold prices go down, it’s a buying opportunity,” said Menke, who predicted gold could approach $1,900 next year.
Citi analysts said gold is likely to bottom in September or October and prices should average $1,775 an ounce in the final quarter of this year and $1,870 in 2023.
Bank of America expects gold to average $2,100 in 2023.
Also supporting bullion is geopolitical instability following Russia’s attack on Ukraine and fears that high rates will destroy economic growth without stopping inflation, a condition known as stagflation. Both scenarios encourage investors to buy gold as a safe store of value.
Gold is currently trading around $600 an ounce above its “fair value,” based on rates, consensus inflation expectations and dollar strength, according to analysts at the Australian bank. ANZ.
GRAPHIC (in English): Gold, dollar and real yields in USA: https://tmsnrt.rs/3LAgdZb
GRAPHIC (in English): Gold and interest rates in USA: https://tmsnrt.rs/3DNvIew
GRAPHIC (in English): Exchange Traded Fund Stocks and Gold Prices: https://tmsnrt.rs/3dIv86Z