As the rate rises near their end, gold prices are expected to reach record highs.
Peter Hobson
LONDON, (Reuters) – Gold prices are expected rise to record highs of $2,000 an ounce in 2018, despite some turbulence as the United States slows down rate hikes, and eventually stops increasing them.
Spot prices have risen by 18% to $1,900 an troy ounce since November, as inflationary pressures ease and markets expect less aggressive U.S. Federal Reserve monetary policy.
The gold price fell sharply last year due to rising interest rates. They dropped as low as $1613.60 in September, from $2,069.89 in March. This is just short of a record high in 2020.
Higher rates led to lower returns on bonds and made non-yielding assets like gold less appealing for investors. They also pushed the dollar to its strongest level in 20 years. This has resulted in dollar-priced Gold becoming more costly for many buyers.
Graphic: Gold, U.S. dollar and real U.S. yields, https://fingfx.thomsonreuters.com/gfx/ce/dwpkdakbnvm/GOLD%20GRAPHIC%202023%20DOLLAR%20AND%20YIELDS.JPG The weakening U.S. currency and bond yields “will become macro tailwinds for the yellow metal, pushing gold above $2,000/oz in the coming months,” said analysts at Bank of America.
Investors are more likely to purchase bullion when there is less dollar pressure and less interest from bonds. Nitesh Shah, WisdomTree analyst, stated that bullion could be bought as a hedge against inflation or economic turbulence. He also said that prices could easily rise above $2,100 per ounce by the end of the year.
Gold is traditionally considered safe to store wealth. Shah said that there is a high chance of central banks overdoing things and leading to recession.
Speculators who had been betting that gold prices would fall in November have built a net long position on COMEX futures worth $8 million, which helped push up prices.
Graphic: Gold speculative positioning, https://fingfx.thomsonreuters.com/gfx/ce/xmvjklbddpr/GOLD%20GRAPHIC%202023%20POSITIONING.JPG Analysts expect central banks to continue stockpiling gold after buying more metal in the first nine months of 2022 than in any year in half a century, according to the World Gold Council.
According to analysts at ANZ, the rebound in economic growth should boost retail demand of coins and bars made from gold bars.
Graphic: Gold demand, https://fingfx.thomsonreuters.com/gfx/ce/myvmogblevr/GOLD%20GRAPHIC%202023%20DEMAND.JPG But gold may have gone too far too fast in the short term and needs to correct lower, analysts said.
“Should prices fall from current levels to the $1,870–1,900 an ounce range, we expect the (upward) trend to reverse,” the bank said, adding that if gold falls below $1,800, it could slip to $1,730. Graphic: Gold technicals, https://fingfx.thomsonreuters.com/gfx/ce/dwvkdakwnpm/GOLD%20GRAPHIC%202023%20TECHNICALS.JPG
(Reporting by Peter Hobson, Editing by Pratima Dasai and Emelia Southole-Matarise