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These three analysts see lower gold prices by year-end

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(Kitco News) - Global financial market uncertainty created by rising inflation pressures and geopolitical turmoil has helped the gold market withstand an aggressive rise in U.S. interest rates; however, according to three precious metals analysts, prices look to end the year lower as rising real yields ultimately dominate investors sentiment.

Last week a webinar hosted by the London Bullion Market Association, James Steel, Chief Precious Metals Analyst at HSBC Securities, Rhona O'Connell, Head of Europe and Asian Market Analysis at StoneX Financial Ltd and Suki Cooper, Executive Director of Precious Metals Research Standard Chartered, presented their macroeconomic outlook for the gold market for the rest of 2022.

While prices have room to move higher in the near-term, the three market analysts were relatively pessimistic about gold as they see lower prices through the end of the year. Cooper said that she sees the gold price falling to $1,750 an ounce by the fourth quarter.

"We should start to see the impact of rising real rates on demand and eventually, we'll start to see event inflation coming down, and we'll see some of that longer-term interest in gold start to dissipate," she said.

Steel reiterated his firm's forecast for gold prices to average the year at $1,820 an ounce, dropping below $1,800 in the second half of the year. He said that not only will gold struggle as real interest rates rise, but he expects the U.S. dollar to remain elevated, creating a second headwind for the precious metal.

"Continued Fed tightening and a relatively firm dollar are going to be two weights that gold will have a very difficult time surmounting," he said.

However, Steel added that he doesn't see a total collapse in gold prices. He said that safe-haven demand due to rising geopolitical risk and its role as an important diversification tool will provide some support for gold.

O'Connell said that while she also sees lower prices in gold, any drop below $1,800 could generate strong buy signals, keeping prices supported around current levels.

O'Connell added that any significant drop in gold prices could spur renewed demand for physical bullion, which is traditionally price sensitive. She also said that Chinese consumers could once again become active gold buyers.

COVID-19 restrictions in China have significantly curtailed gold purchases in China, and that could mean there is a lot of pent-up demand waiting to be unleashed, she said.

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"It's hard to see gold prices going back above $2,000, but I am not as bearish as Suki and Jim," she said.

One scenario O'Connell said that she is watching closely is central bank foreign reserve holdings. She noted that rising interest rates are pushing emerging market economies closer to recession and nations could start to increase their gold reserves to support their currencies.

However, she added that if nations were forced to sell their gold, that would end up being a significant negative for the precious metal.

For many analysts, there is a growing threat of a global recession as central banks worldwide continue to tighten monetary policies. The Federal Reserve is leading the aggressive action. Last week the U.S. central bank raised interest rates by 75 basis points to try and cool inflation pressures.

This is the biggest move the Federal Reserve has made in 28 years and it might not be its last. Federal Reserve Chair Jerome Powell said the central bank could raise rates by 75 basis points again in July.

The Federal Reserve signaled that it sees interest rates rising to nearly 3.5% by the end of the year. During his press conference, Powell said that inflation remains the greatest threat to the U.S. economy.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.