Gold prices have more room to run as global banks struggle and the U.S. Federal Reserve renders another interest rate decision, potentially breaking all-time highs — and staying there.
“A sooner Fed pivot on rate hikes will likely cause another gold price surge due to a potential further decline in the U.S. dollar and bond yields,” said Tina Teng from financial services company CMC Markets. She expects gold will trade between $2,500 to $2,600 an ounce.
Investors have been flocking to gold and Treasurys as bank stocks have been whacked by the shuttering of Silicon Valley Bank and Credit Suisse’s implosion.
Gold is trading at $1,940.68 per ounce. On Monday, it breached $2,000 to strike its highest since March 2022. Gold has risen around 10% since early March when SVB was hit by a bank run.
Gold’s all-time high was $2,075 in August 2020, according to Refinitiv data. Demand from central banks will likely keep wind in its sails.
“Continued central bank buying of gold bodes well for long-term prices,” said CEO Randy Smallwood of Wheaton Precious Metals, a precious metals streaming company.
Smallwood forecasts gold prices hitting $2,500.
Demand for gold skyrocketed to an 11-year high in 2022, owing to “colossal central bank purchases,” according to the World Gold Council. Central banks bought a 55-year high of 1,136 tons of gold last year.
In late March, Fitch Solutions predicted that gold would notch a high of $2,075 “in the coming weeks.” The firm based that outlook on “global financial instability,” adding that it expects gold to “remain elevated in the coming years compared to pre-Covid levels.
Craig Erlam, a senior market analyst at foreign exchange company Oanda, agrees with Fitch’s buoyant outlook.
“I think it’s very plausible that we see a strong performance in gold over the coming months. The stars appear to be aligning for gold which could see it break new highs before long,” he said.
“Interest rates are at or near their peak, cuts are now being priced in sooner than anticipated on the back of recent developments in the banking sector,” said Erlam, who added that he thinks that dynamic will boost gold demand, even if it coincides with a softer dollar.
Investors are closely watching the Federal Reserve’s next moves and their impact on gold prices.
The Fed began their two-day meeting on Tuesday, where it’s widely expected to approve a 25 basis point rate hike Wednesday, though predictions vary among analysts.
“Overall, the Fed will have to choose between higher inflation or a recession, and either outcome is bullish for gold,” said Nicky Shiels, head of metals strategy at precious metals firm MKS Pamp. She forecasts gold to extend to $2,200 per ounce.
A weakening of the dollar may support gold prices, according to HSBC’s chief precious metals analyst James Steel, who expects a 25 basis point hike from the Fed.
“What we saw earlier [last] week was the simultaneous events of both gold and the dollar. And that’s quite unusual,” Steel said, referring to the rise in gold prices and the dollar last week.
There’s usually an inverse relationship between gold prices and the U.S. dollar. But investors tend to like the perceived safety of U.S. Treasurys and gold simultaneously during periods of financial stress.
“This scenario does not happen often but when it does — it is always a sign of elevated investor concerns,” Steel said.