The gold market continues to struggle as prices remain below $1,900. While the Federal Reserve continues to raise interest rates to curb inflation, an international bank is coming up with lower gold forecasts in the first half of the year.
The model shows lower levels, but…
In its latest outlook forecast, Natixis precious metals analyst Bernard Dahdah says prices could fall further as bond yields remain high as inflation pressures continue to fall, despite gold’s correction this month. However, Dahdah adds that according to the bank’s economic model, it does not show as much downward trend as it should. In this context, the analyst makes the following statement:
The model shows that prices could average $1,586 in 2023. However, given that there are more than a few parameters in the real world, we wouldn’t be too fixated on this number.
Base case for gold forecasts
Prices have the potential to drop significantly this year. However, Dahdah says investor concerns about a recession and strong expectations for a possible rate cut in the second half of the year should prevent gold prices from falling to a multi-year low. Accordingly, the analyst makes the following statement:
So, in our base case, we predict prices will average $1,790 in 2023 and then rise to an average of $1,830 in 2024 when the Federal Reserve begins to lower interest rates.
“This needs to be supported”
The comments come at a time when gold prices are struggling to attract new investors after a solid start to the year. Dahdah says the bank’s economists are seeing moderate growth in 2023, despite the US falling into recession in the second and third quarters of the year. However, he also notes that the downturn will not be deep enough to force the Federal Reserve to cut interest rates. Dahdah adds the following to his words:
Our model does not meet market expectations of a potential Fed rate cut. As we enter the second half of the year, we believe that the expectation of interest rate cuts in 2024 will increase. This also needs to be supported.
There are also expectations for silver in line with the forecasts for gold.
cryptocoin.com As you follow, at the beginning of the year, the markets started to price the interest rate cuts as of the end of the year. However, persistently high inflation is helping to change market expectations. CME’s FedWatch Tool shows that there is a growing probability that the Fed Funds rate will peak at around 5.50% at the end of the year, above 5%.
U.S. Department of Labor data on Tuesday showed annual inflation fell for the seventh straight month, despite staying well above the Federal Reserve’s 2% target. The US CPI rose 6.4% year-on-year in January, slightly below the 6.5% year-on-year increase in December. However, inflation fell from 9.1%, a June 40 high. Alongside gold, Dahdah says he sees the potential for silver prices to fall as the two metals remain highly correlated. In this regard, he shares the following statement:
As it stands now, the quarterly rolling correlation between gold and silver hovers at +0.83. This indicates a very strong relationship between the two metals. Over the last two decades, this correlation averaged +0.81 and only briefly dropped below +0.7 in 2011 and 2015. In our view, the prices of both metals will decrease in the coming months.
