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Gold is well supported at $2,000 but don't look for record highs before Q2 2024 - Commerzbank

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(Kitco News) - The Federal Reserve's shift to a more neutral stance on interest rates will continue to support gold prices, but one international bank is warning investors that the precious metal could see some weakness in the near term.

Last week the gold market came within $4 of its all-time highs after the Federal Reserve raised interest rates by 25 basis points and signaled that it is ready to hold interest rates steady. In her latest gold update, Thu Lan Nguyen, head of commodity research at Commerzbank, said that it is unlikely the Federal Reserve will be able to raise interest rates further in the current environment. As a result, she is increasing her year-end gold price target to around $2,000 an ounce, up from the previous target of $1,950 an ounce.

In its quarterly targets, Commerzbank said that it sees gold prices holding a steady average of $2,050 an ounce in the fourth quarter of this year and the first quarter of 2024.

While the German bank is bullish on gold, Nguyen said that investors will probably have to wait until at least the second quarter of next year before gold sees a sustained break above its all-time highs.

Although the Federal Reserve may not be looking to raise interest rates anytime soon, Commerzbank said it is unlikely they will cut rates this year.

"Even though the Fed has ended its rate hike cycle somewhat earlier than we had expected, our US experts continue to regard rate cuts as unlikely this year. Fed Chairman [Jerome] Powell also rejected such expectations at the press conference following the meeting," Nguyen said in her report. "After all, inflation (based on consumer prices excluding energy and food) is still well above the Fed's target at 5.6% most recently, and it is likely to take some time before it approaches the 2% target on a sustained basis."

Despite Powell's comments pushing back on the idea of rate cuts this year, the market expects that interest rates will end the year nearly 100 basis points lower. Markets are pricing in the first rate cut by September.

While shifting market expectations will weigh on gold, Nguyen said she sees solid support for the precious metal around $2,000, up from the previous floor at $1,900.

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"We do not believe that rate cuts are off the table entirely but merely that they will happen later (at the beginning of next year) than currently priced in by the market. As soon as the Fed raises a clearer prospect of an interest rate turnaround, the gold price is likely to climb lastingly and more noticeably above the $2,000 mark, though we only expect this to happen towards the end of this year," she said.

Commerzbank's gold price forecast was published just before Friday's nonfarm payrolls report, which showed solid employment gains and caused gold prices to fall more than 2%, testing support just above $2,000 an ounce.

Gold prices have since recovered and are starting the week on solid footing. June gold futures last traded at $2,032.10 an ounce, up 0.35% on the day.

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