Tina Teng from financial services company CMC Markets noted that a sooner Federal Reserve pivot on rate hikes will likely cause another gold price surge due to a potential further decline in the US dollar and bond yields. This sentiment is echoed by other industry insiders, with CEO Randy Smallwood of Wheaton Precious Metals, a precious metals streaming company, forecasting gold prices to hit $2,500.
Investors have been flocking to gold and treasuries as bank stocks have been hit by the shuttering of Silicon Valley Bank and Credit Suisse's implosion. Gold is currently trading at $1,940.68 per ounce, breaching $2,000 on Monday to strike its highest point since March 2022. The precious metal has risen around 10% since early March when SVB was hit by a bank run.
Demand for gold skyrocketed to an 11-year high in 2022, owing to “colossal central bank purchases,” according to the World Gold Council. Central banks bought a 55-year high of 1,136 tons of gold last year.
In late March, Fitch Solutions predicted that gold would notch a high of $2,075 “in the coming weeks.” The firm based that outlook on “global financial instability,” adding that it expects gold to “remain elevated in the coming years compared to pre-Covid levels.”
The Federal Reserve's next moves are closely watched by investors and their impact on gold prices. The Fed began its two-day meeting on Tuesday, where it’s widely expected to approve a 25 basis point rate hike Wednesday, though predictions vary among analysts. Nicky Shiels, head of metals strategy at precious metals firm MKS Pamp, notes that the Fed will have to choose between higher inflation or a recession, and either outcome is bullish for gold. She forecasts gold to extend to $2,200 per ounce.
A weakening of the dollar may support gold prices, according to HSBC's chief precious metals analyst James Steel, who expects a 25 basis point hike from the Fed. Steel noted that it's unusual for gold prices and the dollar to rise simultaneously. This scenario typically occurs during periods of financial stress, where investors tend to favor the perceived safety of US Treasuries and gold.
Overall, the stars appear to be aligning for gold, with many analysts predicting a strong performance for the precious metal over the coming months. While there may be some fluctuations in the short term, the long-term outlook for gold looks bright, with continued central bank buying of gold boding well for its prices.