A quarter gold jewelery dealer poses with three 1kg gold bars on December 13, 2023 in Birmingham, England. Photo by Christopher Furlong/Getty Images
Gold may not support currency values or attract average investors like it once did, but the shiny yellow metal will always have its supporters. gold bug Flying again. Gold prices soared past all-time highs this week to around $2,200 per ounce after the Federal Reserve ignored multiple reports of higher-than-expected inflation and reaffirmed its outlook for three interest rate cuts this year.
David Morrison, senior market analyst at TradeStation, wrote in a note on Thursday that precious metals prices had “soared” due to the “dovish surprise” at Wednesday’s Fed press conference. Before the announcement, many investors expected Fed Chairman Jerome Powell to warn that interest rates need to remain high for an extended period of time after January and February’s inflation report went in the wrong direction. I was worried that this might be the case. But Powell instead said the data “doesn’t really change the overall picture, which is that inflation is gradually moving down a sometimes bumpy path towards 2%.” .
Prime Minister Scott Morrison said the news caused both the dollar and Treasury yields to fall sharply and commodity prices to rise, while “the prospect of lower borrowing costs makes holding gold an asset more attractive.”
Gold prices have risen 10% since mid-February and 20% from October lows, but this move is being driven by more than the prospect of lower interest rates. Central banks’ hoarding of precious metals and rising geopolitical risks amid the Red Sea crisis and U.S.-China tensions are also pushing up safe-haven assets.
Central banks bought a record 2,100 tonnes of gold in 2022 and 2023, according to Bank of America data, significantly reducing global supply and pushing prices higher.
“For precious metals investors, this is all good news. But they need to be prepared for a profit-taking pullback that could take the shine off the recent rally,” Morrison warned. “Then we’ll see whether the weeding out of weak hands sets the stage for a bigger rally, or whether the top is already in sight this year.”
bull’s view
Prime Minister Scott Morrison is concerned that gold prices have reached their highest level this year, but others are more bullish. Bank of America analysts led by Research and Investment Committee Chairman Jared Woodard argued in a note Thursday that gold still has room to play and could even meet technical strategists’ high price targets. did.
“Gold remains one of our favorite trades in 2024,” they write. “Lower yields could encourage more investors to enter the market, which could help push gold prices into Paul Sciana’s long-term upside potential.” [target] It costs about $2,500 to $2,600. ”
Woodward and his team cited an “unprecedented” gold buying spree by central banks. More “mom and pop investors” may buy in and drive prices higher. Gold’s ability to act as a hedge against stock market risk is cited as the top three reasons to own gold or gold-related ETFs.
Similarly, Tim Hayes, chief global investment strategist at Ned Davis Research, said in a recent note that his model shows gold prices will continue to rise. He also noted that investor sentiment for precious metals tends to spike when corrections occur, but not as sharply as stocks, and that history supports the bullish view on gold.
“Gold is currently up 34% in 417 days from its 2022 cyclical low, with further upside potential if the bull market rally reaches the median cyclical bull market within the secular bull market. It’s going to get bigger,” Hayes wrote. “This potential is currently supported by reasonable sentiment, lower interest rates, a weaker dollar, and a bullish trend model reading.”
