Gold’s continued bull run has analysts revising their predictions for the next couple of years upwards.
The safe haven metal continues to hit new records, last week rising to over US$2,480 ($3,700) an ounce on anticipated interest rate cuts and following an assassination attempt on former US President Donald Trump.
Following the latest spike, Shaw and Partners upgraded its gold price forecast to US$3,000 an ounce for 2025 and 2026, citing monetary policy, US debt, de-dollarisation and geopolitical tensions as key drivers.
JP Morgan, meanwhile, expects the gold price to average US$2,500 in the fourth quarter of this year before heading higher to average US$2,600 an ounce in 2025.
Gregory Shearer, head of base and precious metals strategy at JP Morgan, says gold’s resurgence has come earlier than expected, as it further decouples from real yields.
“We have been structurally bullish gold since the fourth quarter of 2022 and with gold prices surging past US$2,400 in April, the rally has come earlier and has been much sharper than expected,” he says.
“It has been especially surprising given that it has coincided with Fed rate cuts being priced out and US real yields moving higher due to stronger labor and inflation data in the US.”
Mining equities analyst Dorab Postmaster says lower interest rates reduce the yields on assets such as government bonds, resulting in demand for alternative “safe” investments — such as gold — increasing.
“Softening economic data has heightened speculation that the economy is headed towards a soft landing that would allow the US Federal Reserve Board to start easing rates in the near term,” he says.
Trillions of dollars worth of US debt also needs to be repaid this year, with no clear path forward on how exactly the US will do that, according to Postmaster.
He says elevated levels of federal debt weakens investor confidence in the economy and, in turn, spurs safe-haven demand for gold.
“US$10T out of a total of US$34T of US debt is due to mature this year,” Postmaster says.
“Currently there is no unified view from Congress on how to tackle this. Adding complexity to the situation is the upcoming election.”
Meanwhile, moves led by China to dethrone the US dollar as the global reserve currency is also positively influencing the direction of gold.
“Historic levels of gold have been bought by Central Banks globally over the past two years, and they continue to be strong buyers,” Postmaster says.
“China is the leading central bank gold purchaser in a move many see as part of the trend towards ‘De-Dollarisation’.”
The Russia-Ukraine war, escalation of tensions in the Middle East, and trade concerns between China and the US are also generating increased interest in gold.
Natasha Kaneva, head of global commodities strategy at JP Morgan, says many of the structural bullish drivers of the gold price will likely remain irrespective of who wins the November US election.
Source: Angela East mining.com
