The Fed’s more neutral stance on interest rates will continue to be supportive for gold prices. But an international bank warns investors that the precious metal could see some weakness in the near term. However, one market analyst advises investors to focus on the broader uptrend in the market.
Commerzbank raises target for gold prices
cryptocoin.com As you follow, last week, the Fed increased interest rates by 25 basis points. However, it has signaled its readiness to keep interest rates steady. After that, the gold market approached an all-time high of $4. Thu Lan Nguyen, head of commodity research at Commerzbank, says the Fed is unlikely to raise rates any further in the current environment. As a result, it raises its year-end gold price target from $1,950 to about $2,000.
In its quarterly targets, Commerzbank expects gold prices to remain steady at an average of $2,050 in the fourth quarter of this year and the first quarter of 2024. The German bank is on the rise in gold. However, Nguyen says investors will likely have to wait until at least the second quarter of next year for gold to rise above all-time highs. The Fed has no plans to raise interest rates anytime soon. However, Commerzbank says it is unlikely they will cut interest rates this year. From this point of view, Nguyen makes the following assessment in his report:
The Fed ended the rate hike cycle a little earlier than we expected. However, our US experts continue to think a rate cut is unlikely this year. Fed Chairman Jerome Powell also rejected such expectations at a press conference after the meeting. All in all, inflation is still well above the Fed’s target, with 5.6% recently. Also, it will probably take some time to consistently approach the 2% target.
Then gold is likely to rise above $2,000 permanently.
Despite Jerome Powell’s comments that pushed back the idea of a rate cut this year, the market expects rates to end the year about 100 basis points lower. Meanwhile, markets are pricing in the first rate cut by September. Changing market expectations seem to put pressure on gold. However, Nguyen says he sees solid support around $2,000 from the previous base $1,900 for the precious metal. In this context, Nguyen makes the following statement:
We do not believe that interest rate cuts are completely off the table. We only anticipate that it will happen later (early next year) than the market is currently pricing. As soon as the Fed makes the possibility of a reversal in interest rates clearer, the price of gold is likely to rise permanently and more significantly above the $2,000 level. But we expect that to happen only towards the end of this year.
Gold prices will be much higher in five years!
Degussa’s chief economist, Thorsten Polleit, says investors should use the weakness in gold prices to build a strategic long-term position. Polleit said, “If you are a long-term investor and want to hold gold for the next five years, then this is the right price. Looking beyond the noise, gold prices will be much higher five years from now,” he says.
Gold prices have not reached all-time highs for now. However, Polleit predicts that gold will end the year around $2,200. He adds that investors just need to be a little patient. In this context, the analyst says, “I am actually considering raising my year-end target because of the way gold moves.”
Markets are pricing in rate cuts this year because…
Thorsten Polleit points out the mismatch between market expectations and Powell’s comments. He says this has created some safe-haven demand for gold. Polleit adds that he hasn’t seen such a long-term difference in what the market is pricing compared to central bank comments. In addition, the analyst comments:
Markets are pricing in rate cuts this year. Because there is growing distrust of central bankers’ predictive ability. Even if the Fed doesn’t cut rates as soon as markets expect, there’s still plenty of support for gold. Because interest rates will go down. It’s only a matter of time.
Uncertain economic environment will continue to push investors to gold
Looking ahead, Polleit says he thinks the Fed will cut interest rates in the second half of the year. The analyst sees it as unlikely that the Fed will have enough information to cut interest rates before summer. Looking beyond interest rates and inflation, Polleit notes, another area where the Federal Reserve and other central banks are losing credibility is the growing banking crisis. The analyst says the Fed downplayed the banking crisis to the detriment of investors. He expresses his views on this matter as follows:
The banking crisis is significant and is only just beginning. The flow of funds from small and medium-sized banks is real. At the same time, they see higher capital costs. We also haven’t seen the full impact of the commercial real estate market yet.
Polleit says that this uncertain economic environment will continue to push investors to the bottom. The analyst states that in an environment where the bond market is struggling with the dollar, there are few options left for investors. Polleit is also considering what will bring gold below $2,000. In this context, the analyst notes that he does not think that any of the new trends such as the decrease in globalization in the global market or the de-dollarization will change anytime soon.
