UAE: Will gold prices touch $2,300 as US rate hikes nearly come to an end?

Amalysts say despite fluctuations, gold maintains year-to-date gains, supported by seasonal trends, strong equity returns, and central bank demand, suggesting a potential record high ahead

Gold prices are expected to rise later this year and in early 2024 as the US interest rate hike cycle will end soon, pushing precious metal up by around 20 per cent to $2,300 an ounce, say analysts in the UAE.

The yellow metal has been declining in the past few weeks, trading close to a one-month low at $1,913.

In the past few months, the yellow metal prices settled into a $1,900 to $2,000 range. Despite the recent weakness, it continued to trade up around 5% on the year.

“The recent drop has been driven by a correction in the dollar and speculation that the US Federal Reserve may have to raise interest rates further, not least considering the recent spike in oil prices, which has been supported by tightening market conditions as Saudi Arabia forces the price higher through lower production,” said Ole Hansen, head of commodity strategy at Saxo Bank.

In addition, investors have responded to the better-than-expected performance across the major stock markets, especially in the US, by cutting back their gold exposure through exchange-traded funds (ETFs). Since early June, investors have cut their total gold holdings via ETFs by 100 tons to 2,821 tons, the lowest level since April 2020.

Meanwhile, the World Gold Council said January and August are historically the strongest months for gold returns.“August returns have likely been influenced by seasonally weak US Treasury yields, some wholesale buying in China and restocking in India, as well as anticipation of a seasonally weak September for equity returns,” it said in its latest update on the commodity.

Bas Kooijman, CEO and asset manager of DHF Capital, said over the longer run, gold could continue to find support from central bank demand, which could remain elevated. “Jewellery markets could also help prop up the metal in particular if economic growth remains strong and the Chinese economy recovers more strongly,” said Kooijman.

Ole Hansen forecasted that outlook for gold, however, remained supportive based on the assumption that the US rate hike cycle will end soon and be followed by a succession of rate cuts. “We do not believe the US Federal Reserve will be successful in bringing long-term inflation back down below 2.5%. Instead, we see long-term inflation settle somewhere around 3.5%. If our assumption is correct, it will likely drive renewed interest for gold at a time when a global economic slowdown reduces the prospect for further gains in the stock market. We see gold hit a new record high later in the year, and once the rate cut cycle begins next year, it may reach as high as $2,300,” added Hansen.

Courtesy: Khaleej Times