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ABN AMRO downgrades gold price but sees solid support around $1,700

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(Kitco News) - Friday’s comments from Federal Reserve Chair Jerome Powell made it clear that the central bank will continue to aggressively raise interest rates through the end of the year, which will continue to weigh on gold prices, according to one market analyst.

Georgette Boele, senior gold strategist at ABN AMRO, said that she now sees gold prices ending the year around $1,700 an ounce as the Federal Reserve could bring the Fed Funds rate closer to 4%.

The Dutch bank’s new price target is a sharp downgrade from its previous estimate for the precious metal to end the year at around $2,000 an ounce. The downgrade comes as gold prices hover around $1,750 an ounce; Boele noted that so far this year, gold prices have dropped 3.6%; however, she added that prices are expected to hold solid support above last month’s lows.

“We only expect a modest decline in gold prices from the current levels. This is based on our view that we expect the U.S. dollar to remain relatively strong, although we have not pencilled in another strong rally from these already high levels,” Boele said in the report. “Secondly, we think that U.S. real yields are close to a peak or have already peaked. As a result, it is likely that this driver will not add substantial pressure on gold prices from current levels. Third, there is a crucial support area layered at USD 1.680-1700 per ounce. We expect these levels to be tested again and prices could move below these, albeit only temporary.”

The comments come as the CME’s FedWatch Tool puts the chances of a 75-basis point hike at more than 70%. Last week markets saw a 50/50 chance of the central bank raising the Fed Funds rate by 50 or 75 basis points.

Expectations have solidified after Powell warned markets in his speech in Jackson Hole Friday that not only will interest rates be moving higher, but could remain higher for longer than expected.

Although gold prices will remain under pressure throughout the year, Boele is optimistic that prices will move higher in 2023.

“Not only do we expect the U.S. dollar to weaken, but we also expect the Fed to start cutting rates in the second half of 2023. On top of that, we expect lower U.S. real yields. As a result, gold prices are likely to rebound next year,” she said.

The Dutch analyst sees gold prices pushing to $1,900 an ounce by the end of next year.

Commerzbank lowers gold price target to $1,800 and sees potential for higher prices by 2023

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