Gold prices surged on Tuesday following a streak of record-breaking futures pricing for the precious metal in the preceding two sessions, with analysts anticipating sustained strength at least through the latter half of the year.
The April gold contract soared on Monday, closing above $2,100 per ounce for the first time and climbing 0.37% to $2,134.2 by 1:15 p.m. in London. Meanwhile, spot gold saw a 0.7% increase, trading at $2,129. However, observers caution that when adjusted for inflation, gold remains below historical peaks.
In a note issued on Monday, analysts at Citi identified themselves as “medium-term bullion bulls,” assigning a 25% probability of gold averaging a record $2,300 per ounce in the second half of the year. Their base projection holds at $2,150, while they maintain a “wildcard” prediction of prices reaching $3,000 over the next 12 to 16 months.
Citi characterizes gold as a hedge against recession in developed markets and anticipates additional support from uncertainty surrounding the U.S. presidential election in November.
Echoing these sentiments, analysts at Berenberg highlighted on Monday that a potential victory for Donald Trump in the election would be a significant boon for gold, with ongoing geopolitical tensions in Ukraine and Gaza providing further impetus for the safe-haven asset. Consequently, they foresee momentum in gold-linked stocks, which they assert have recently deviated from the underlying commodity despite its near-record prices.
“This is mainly due to better-than-expected economic performance from the U.S., as well as a persistently hawkish stance on monetary policy from the U.S. Federal Reserve,” they remarked.
Traditionally, higher interest rates have been associated with a decline in gold prices as investors turn to assets offering higher yields. However, the recent surge in gold prices, both in late 2023 and in recent days, has been fueled by expectations of impending rate cuts from the Federal Reserve.
Conversely, gold is often viewed as a safe haven during periods of economic turmoil. The non-yielding asset also gains appeal when yields are suppressed by aggressive monetary measures such as rate cuts and stimulus. Recent gains in gold prices have been linked to mounting speculation of a rate cut by the Fed in June.
Market indicators suggest a 55% likelihood of a 25 basis point cut in June, according to CME’s FedWatch tool.
“We believe Fed policy will remain key for the outlook of gold prices in the months ahead and expect gold prices to remain volatile in the coming months as the market also reacts to macro drivers and geopolitical events,” strategists at ING remarked on Tuesday.
