Gold’s meteoric rise to record levels in recent months has defied many traditional correlations, sparking both excitement and caution among investors. While some experts see continued potential in the market, one prominent international bank is urging vigilance, warning that these unusual trends could revert later this year.
Georgette Boele, Senior Economist at ABN AMRO Sustainability Research, remains steadfast in her prediction that gold will reach $2,000 per ounce by year-end, despite the current market frenzy.
“The trajectory of gold prices appears bullish with seemingly limitless upside,” Boele remarked in her latest analysis. “However, we maintain a cautious stance for several reasons. The positive correlation between gold prices and factors such as the US dollar and US real yields, though atypical, historically tends to be temporary, lasting around 3 to 6 months. Additionally, while declines in 2-year US real yields may offer some support, the broader context warrants prudence.”
Boele’s remarks coincide with gold prices stabilizing near historic highs, hovering around $2,400 per ounce, with June gold futures recently trading at $2,406.60, marking a 1% increase for the day.
Remarkably, gold has surged to unprecedented levels even as market expectations for the Federal Reserve’s easing measures have shifted. Last week, the possibility of a June rate cut was dismissed following unexpectedly high inflation data.
“Contrary to expectations, gold prices persist in their ascent,” Boele observed.
She also drew attention to the selective nature of gold investments, noting that while demand remains strong in certain sectors driven by safe-haven motives and momentum, broad-based buying has not materialized. Boele pointed out ongoing liquidation of gold-backed exchange-traded funds by investors.
“Preference for certain forms of gold and strategic options positioning with bullish targets for December, such as strikes at USD 2,500 and 3,000 per ounce, indicate a nuanced investor sentiment,” she added.
Moreover, Boele highlighted the absence of significant disruptions in the gold supply chain, contrary to the narrative during the COVID crisis, when physical gold shortages spurred elevated futures market activity and substantial premiums for physical purchases.
“While central bank acquisitions persist, the current pricing dynamics remain unjustified,” she asserted. “The lack of supply disruptions coupled with muted speculative activity on futures markets underscores the need for a cautious outlook.”
In conclusion, Boele’s analysis underscores the complex interplay of factors propelling gold to unprecedented heights, cautioning investors against complacency amidst shifting market dynamics.