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(Kitco News) - The gold market is struggling to hold its ground at around $2,000 an ounce as markets adjust to shifting interest rate expectations; however, one market analyst said that the precious metal remains well-positioned to protect investors from further market turmoil.
In an interview with Kitco News, Joy Yang, global head of index product management at MarketVector Indexes, said that the inflation threat may have diminished, but investors continue to face a litany of other risks as the global economy has yet to feel the full effects of the Federal Reserve's aggressive monetary policies.
"We are just starting to see the potential fragility that comes with the end of years of access to easy money," she said. "This shift from easing to aggressive tightening comes with tighter credit issues and will become a new macro driver for gold prices. Investors are starting to understand that if the Fed keeps increasing rates, there may be wider economic contagion. So, there's still a lot of safe-haven support for gold."
Yang's bullish outlook on gold comes as another wave of fear starts to build within the banking sector. Investors' anxiety has picked up after beleaguered regional bank First Republic Bank said it lost $100 billion worth of deposits in the first quarter of 2023 before it received $30 billion from the big banks in an attempt to restore some faith in the sector.
Yang noted that it will take time before all the issues in the global banking system are unraveled. She pointed out that in the 2008 Great Financial Crisis, there was a months-long lag between the collapse of Bear Sterns and Lehman Brothers.
"I can't believe that only these few banks have had liquidity issues," she said. "I can't believe that there are no other banks with credit issues. I certainly think that the risk in commercial real estate is real. There are going to be a lot more loan write-offs to come."
Although gold prices are struggling to hold their ground at around $2,000 an ounce, Yang said that investors need to pay attention to the broader environment. Although gold has been unable to break out to new all-time highs, Yang pointed out that the market is seeing upward-sloping support.
Since its lows in October, gold's rally has established solid support at $1,600, then around $1,730, again at $1,800 and the latest support level analysts are watching is around $1,950 an ounce.
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"If you look at the drivers for this gold rally, central bank demand, geopolitical uncertainty, inflation fears and slowing growth, they haven't gone away. The floor in gold is definitely shifting upwards because there are more factors that are supporting the price," she said.
Yang noted that the Federal Reserve's impending shift in its monetary policy remains a significant factor, supporting and driving gold prices. Although markets have all but priced in a 25-basis point hike next week, Yang said there is a growing realization that the central bank can't increase rates forever.
While expectations have been pushed back in recent weeks, markets are still pricing in rate cuts before the end of the year.
"Inflation monster that won't easily go away and there is a risk that we could have both an economic crisis and inflation," she said. "That will be a strong environment for gold."
