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Gold price at risk of dropping to $1,900 as rally runs out of steam, markets pricing in Fed rate cuts too early, says ABN AMRO
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(Kitco News) Gold is already up 10% year-to-date, and its rally is at risk of running out of steam, said ABN AMRO bank.
Gold's stellar rally has taken prices as far as they are likely to go this year, Georgette Boele, senior economist at ABN AMRO, said in a note Friday.
"This year gold prices have rallied by more than 10% versus the U.S. dollar. A weaker dollar and expectations that the Fed hiking cycle will come to an end soon are the main reasons behind its strength. Concerns about the economic outlook, inflation and geopolitics tensions have also helped. We think that the upside is limited from current levels," Boele wrote.
With June Comex prices last trading at $2,018.70 an ounce, gold is at risk of falling back to the $1,900-$1,950 range before resuming its trend higher, Boele pointed out.
Gold's upside is limited because the Federal Reserve won't deliver rate cuts as early as markets expect.
"Markets anticipate Fed rate cuts to start in Q3 so this is reflected in gold prices. We think that rate cuts will come later and that the easing will only to start at the end of this year," Boele explained.
The U.S. dollar will also weigh on gold in the next few months since the greenback is likely to rally as markets re-price Fed's rate cuts for a later period.
But the overall bullish trend is here to stay, and gold will pick up steam in 2024, with the Fed, the European Central Bank and the Bank of England starting to loosen their monetary policies, Boele noted.
"Monetary policy easing by the Fed, ECB and BoE will be a positive for gold prices in 2024 as the rate differences between USD/EUR/GBP versus gold (zero interest rate asset) narrow. It is likely that the effect will be less strong than when interest rates were much lower as a considerable spread in favour of this currencies will remain," she said.
ABN AMRO's updated gold forecast sees prices at $2,000 in 2023 and $2,200 in 2024.
