The US Federal Reserve continues its hawkish trend. However, there is growing optimism that the US economy can avoid a serious recession. In this environment, gold prices are close to the lowest level of the last six months. Besides, the Fed’s stance continues to put pressure on the gold market.
“ These form a supportive basis for gold prices.”
However, analysts at Australia-based bank ANZ say they maintain their medium and long-term bullish outlook on the precious metal despite short-term selling pressure. Daniel Hynes, senior commodity strategist and lead author of recent reports, says that while he cannot rule out a drop below $1,900, he sees solid signs of support in the market. In the report, Hynes underlines the following points about gold prices:
We believe the Fed is nearing the end of its upward cycle, the USD is in a structural downtrend, and tightening credit conditions may be an economic risk. These form a supporting ground for gold.
Biggest risk to gold prices: ‘Goldilocks’ economic conditions
ANZ continues to rise on gold. However, the current lackluster environment has caused the bank to withdraw its forecasts for new record highs. The Australian bank now estimates prices will average around $2,050 by the fourth quarter of 2023. He also expects gold prices to reach new highs by the end of the first quarter of 2024 with an average price of around $2,100.
The medium-term bullish outlook emerges with December gold futures trading at $1,933.60, unchanged throughout the day. Hynes says the biggest risk to gold in the near term is the emerging ‘Goldilocks’ economic conditions. From this point of view, the analyst makes the following assessment:
The US economy remains resilient, as evidenced by strong economic data. Moderate inflation and strong labor data offer an ideal macroeconomic balance. As a result, the market has pushed aside the possibility of a hard landing. This reduces safe harbor flows for gold.
ANZ predicts investors will increase their gold holdings
However, inflation continues to decline from last year’s 40-year high. That’s why ANZ predicts the Federal Reserve’s interest rates have reached their peak. Haynes says gold prices should not be alarmed by the potential for a final rate hike. Also, “Real rates are likely to rise as inflation falls. As a non-yielding asset, gold tracks US real interest rates in the opposite direction.”
cryptocoin.com As you follow, the latest data shows that the US economy continues to be quite resilient. However, ANZ does not rule out the potential for a recession until the first quarter of the new year. Haynes explains:
While the likelihood of a recession has diminished, the risk of an economic downturn is not completely off the table. Tighter credit conditions and lower demand for credit are normally associated with recession risk. If this happens in 2024, we expect investors to start hedging this economic risk by increasing their gold holdings.
The precious metal is in a perfect position!
Meanwhile, liquidations continue in gold-backed exchange-traded products. Despite that, analysts say gold prices are in an excellent position to reap the benefits as market sentiment begins to shift. Hynes shares the following comment on the subject:
We believe investment demand can skyrocket when the market confirms that the rate hike cycle has stalled, or when economic growth is disappointed.
