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(Kitco News) Despite a "strong risk" of a selloff in the second quarter, gold is looking to make a "sustained" move to $2,100 later this year, according to the latest update from TD Securities.
"While some recent gains have been pared back and there is a strong risk of further declines during Q2-2023, we judge that gold is likely to trend up to a sustained level of $2,100/oz in the latter part of the year,' said TD Securities' head of commodity strategy Bart Melek.
There are a number of drivers supporting gold at these elevated levels — lower nominal and real rates, U.S. dollar concerns, strong physical buying, and continued interest from central banks.
Gold is viewed as a hedge against the biggest banking crisis since 2008 despite the Federal Reserve's likely commitment to raising rates by another 25 basis points in May.
The latest precious metal rally, which saw prices climb to $2,050 an ounce last week, was partly triggered by markets pricing in rate cuts despite Fed speakers promising more rate hikes.
"The yellow metal has benefited from the disconnect between the U.S. central bank's hawkish policy rate guidance and the dovish interest rate path priced by the market," Melek noted Thursday. "Gold's upward prices action was also the result of a weakening USD, very robust investor and official sector buying as they looked for a safe-haven to protect against the ravages of inflation, geopolitical stresses, and concerns surrounding the reserve currency status of the U.S. dollar."
The Fed's credibility is on the line here, and the gold price outlook risks are tilted to the upside.
"Risks are to the upside, if monetary authorities are seen to be pivoting toward dovishness before inflation nears target in a meaningful way. Indeed, positioning suggests that the discretionary investor community may well be a catalyst for prices to move materially above our year-end target, as they have plenty of room to grow long exposure," Melek said.
A price correction is possible in the short term due to mixed macro data releases. But a "sustained" move above $2,100 is coming, the strategists added.
"Despite the Federal Reserve's continued commitment to a restrictive monetary policy, which has pushed up rates at a record pace this tightening cycle, gold surged north of $2,045/oz in mid-April," he said. "However, policy ambiguity in the face of strong economic data also suggests that there may still be room to correct further, before the predicted sustained move into $2,100/oz territory happens."
At the time of writing, June Comex gold futures were trading at $2,015.60, up 0.41% on the day.
Federal Reserve Bank of Chicago President Austan Goolsbee said Wednesday he was closely monitoring the impact of the recent bank failures on the larger economy.
"How much squeezing is going to be coming from the bank side I think is going to matter for whether this economy is going to slow down," Goolsbee told NPR's Marketplace. "Everybody is forecasting some growth slowdown for the second half of the year. How intense that will be is going to depend a lot on the financial part."
Last month's failure of Silicon Valley Bank has raised the risk of tighter credit conditions, which would work to cool the economy. This slowdown would be on top of the intended consequences of the Fed's aggressive tightening cycle from the past year.
