Important points
- Several analysts on Wall Street are still optimistic about gold prices, asserting that key factors driving gold demand have not changed.
- Following a strong rally last month, gold and silver prices seemed on track for a significant drop, which occurred last Friday after President Trump nominated Kevin Warsh as head of the Federal Reserve.
Last year, the strategy of buying during dips proved beneficial for stock investors. But will those purchasing precious metals experience the same advantage this time around?
Despite gold and silver suffering their most considerable decline since 1980 last Friday, major banks have upheld their positive price predictions. On Sunday, JPMorgan raised its gold price forecast for the year to $6,300 per troy ounce, while Deutsche Bank maintained a $6,000 target. By late Monday, spot gold was valued at $4,700.
Michael Xue, head of metals research at Deutsche Bank, shared on CNBC that the recent selloff is merely tactical and not indicative of any fundamental change in the value of precious metals.
Why this is important
Gold is often seen as a safe-haven investment, particularly valued by those looking to shield themselves from inflation and market instability. Last year’s upheaval led to a surge in gold prices, and some investors anticipate a continuation, albeit at a slower rate this year.
Xue noted that recent speculative trading has been affecting prices. Yet, he remains positive about gold’s trajectory over the next year, suggesting that reaching $6,000 doesn’t appear too ambitious.
Last year, gold and silver prices surged amid uncertainties regarding U.S. policies, fears over inflation tied to tariffs, and a weakening dollar. The price increases gained momentum last month as investors sought to capitalize on the trend.
Though some latecomers to the market may have suffered losses from last week’s downturn, many experts argue that the core drivers of gold prices still stand robust. Xue referred to central bank demand as a foundational element of gold investor sentiment, which saw a rise in 2022 following the U.S. response to the situation in Ukraine. Deutsche Bank anticipates that central banks will continue accumulating gold to brace for a potentially unstable geopolitical landscape.
Peter Berezin, BCA Research’s chief global strategist, indicated on Monday that Trump’s nomination of Warsh, which many believe triggered last Friday’s price drop, could exert additional downward pressure on gold prices. However, BCA remains optimistic about gold, although they might consider taking partial profits when the market strengthens.
On the other hand, silver has a different narrative. Berezin highlighted that Bitcoin’s dramatic rise and subsequent decline were likely fueled by speculative trading in China, coupled with interest shifting away from it toward other cryptocurrencies.
Silver’s industrial applications, like in semiconductor packaging and solar panels, are expected to support demand moving forward. Yet, even before last Friday, analysts were forecasting that silver prices could dip more sharply than anticipated.
Kolanovic, a former JPMorgan analyst, predicted silver could plummet by as much as 50% from current levels. When spot silver prices approached $115 an ounce last week, it was trading around $80 by Monday—still reflecting a 150% increase over the last year.
As for gold, it has risen about 65% over the past year, despite its recent 16% drop since peaking at roughly $5,600 last Thursday.
